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Honesty you can't go wrong with either car, they both have minor pros and cons so neither one is necessarily better.
I don't think it's fair to say that BMW cut corners just because the X5 has a nicer interior. It's like saying the 5 series cut corners just because the 7 series has a better inside. The fact is the 2nd gen X3 is better than the 1st gen in almost every way, the only complaint I've heard is that the 1st gen had better road feel with the hydraulic steering and that's about it.
However, I have to say is that if interior luxury is a concern then neither the X3 nor the X5 is a good pick because BMW in general is almost always worse than their competitors.
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