Great information posted so far. This forum doesn't kick too much butt or anything...
Speaking from my own experience, I've had the chance to own two R50s, one being a '98 Pathfinder and the other is my current rig, a '01 Infiniti QX4. The differences between the two are negligible at best; the newer models are more well-equipped but I wouldn't let that be a determining factor in your decision.
First off, the '98 Pathfinder is a great SUV. It's well-built, well-balanced in terms of handling vs. power, capability vs. practicality, etc. The VG33E is a veritable tank of a motor, the only "weak" point being the timing belt. I use the term loosely because it's hardly a concern if you maintain a vehicle properly. The timing belt is said to last 100K miles so it's not like it's something that has to be changed frequently. It is a pretty tedious job but do it once and the next time is a breeze. The O2 sensors on the pre '99.5 R50s are also known to fail, so be mindful of that when shopping. Otherwise, for a 3.3L SOHC motor it's got plenty of low-end torque and sufficient power for day-to-day use. A few simple mods will help output, too. All in all, keep the motor happy and it'll reward you with reliability and durability that will last for many years and many miles. The transmission on the '98 is also very reliable, and works well with the manual transfer case. Again, basic maintenance will keep both working without a hitch. If you plan on going off the pavement, I'd recommend a XE or SE model with the 4.636:1 differential. It's a bit more thirsty but it's got some added pep from a standstill compared to the 4.363:1 diff found in some XE and all LE models (keep in mind, these differentials affect the whole range from '96-'04). Other things to look for when buying are rear control arm bushings. These tend to crap out, especially on a 13-year old vehicle and can lead to the dreaded "death wobble" at higher speeds. However, bushings are relatively affordable and there are some good aftermarket options out there made of much more durable material. As for rust, I don't think any pre-2004 Japanese-imported vehicle is not susceptible to this sad reality. Being from MB, my '98 had quite a bit, the worst being the rear quater panel where the "body" is connected to the "frame" and the spring perch for the rear axle. I'm not sure if this will be a concern down in CO but it's something to look for when you're shopping.
Overall, the pre-facelift R50 is a great SUV and when compared to higher-priced 4Runners, it's a way better option. I'm not sure what differences exist between the '97 and '98 but I'm sure they're minimal at best.
Damn, that was reminiscent...
As for the newer model R50s (a.k.a., facelift model), you get different bumpers, grill, hood, and headlights on the VG-equipped ones ('99.5-'00). Besides these superficial changes, it's the same vehicle as the '96-'99 R50s. The engine change took place for the '01 R50, which has the VQ35DE. This is a DOHC, aluminum block engine using a timing chain, as opposed to the SOHC, iron block engine with timing belt in the VG33E. From a purely performance standpoint, the VQ is the superior engine out of the box. Keep in mind I say out of the box, because I'd take a boosted VG34E over a VQ35DE any day of the week.
I'd also consider the VQ35DE to be more of a maintenace hog. My QX4 is just over 131K km (~80K miles) and I had to replace the MAF sensor, something I never did on my '98 even though it was nearly at 200K km (~120K miles). Also, after around 100K miles, the VQ is known to start burning oil. I think this only applies to the asshats who fail to keep up with maintenance, though. Oil changes are important on both engines but I'd say even moreso on the VQ. Keep in mind, the VQ is more performance-oriented engine so it will naturally require more upkeep than the VG, which I'd consider more of a workhorse engine. As far as fuel economy is concerned, I say both are about the same, 16-18 city and 20-21 highway. Of course, this depends on your driving style. My '98 was relatively modified and I was still able to push 15 city and 19 highway.
The All-Mode transfer case was offered on the '01-up Pathfinder LE and Infinity QX4 (IIRC, someone correct if I'm wrong) and utilizes wheel speed sensors up front to provide a kind-of AWD system for use on slippery roads, snow, etc. It also allows for 4x4 just like the manual lever transfer case but offers a lower range gear when employing 4LO. I've used both and like them equally in terms of 4x4 capability; the All-Mode AWD is nice in winter up here in the GWN, though.
So there you have it, pretty much all you need to know about the R50 Pathfinder. If you have plans to modify, you'll find this forum to be the single best online resource there is. Good luck with your purchase!