Personally, I would recommend the 2003 (the "post-facelift" version). There are a few upgrades in the '03's that I happen to like, specifically the lower seat trim redesign and the stereo's "AUX" port in the glove box. That said, my Dad's car (an S430) is a sumptuous pre-facelift model that drives like a dream and gives me no problems.
Have you driven a W220 before? If not, then it might be a good idea to give a few a try. Among the V8's, there are the S430's and the S500's. Either choice is excellent. My 2003 is an S430, and my best friend's 2000 is an S500. The S500 does have a bit more get-up-n-go than the S430, though the latter is far from underpowered. One's slightly more fuel-efficient with good power, and the other's more like a luxury muscle car.
If you're looking for a tight-cornering, sporty-feeling, full sized sedan, I'd actually recommend a BMW 740i. Those things handle like they're on rails. The suspensions on those cars are *amazing*.
The W220 S-class, by contrast, can do some decent cornering, especially on the firmest AIRmatic setting, but it's more of a luxo-cruiser than anything else. It was never intended to be a "sports car". On the softest setting, and with good tires, the AIRmatic ride is absolutely delicious, and even after 11+ hour trips, I don't feel tired.
As for lowering a W220, personally I wouldn't. It takes away from the basic premise of the car, which is, "luxo-cruiser". It's already remarkably aerodynamic as it is. That said, some folks have done it. You will need to be careful of tire clearance during turns, and you will also need to watch out for lower-front-bumper "accidents". Front bumper covers for W220's are not cheap, be they the standard or the AMG types. If you want that "lowered" appearance on a W220, then I would suggest going for 19" or 20" wheels and low-profile tires, while keeping the stock height. Wheels can make all the difference with any car, and that is definitely true with these cars.