The Gen III rides better, has better ergonomics, and is definitely roomier than the Gen II. I never liked the driving position of the Gen II. The seat doesn't go back far enough for me to be comfy, and it's angled too sharply on the front.
One big difference about the Gen II comared to the Gen III...The Gen II certainly seems a lot faster! I drove a '99 Limited 4.0 SOHC for the past couple days, and it's far and away faster than mine. I'm not sure what rear end ratio it has, but the thing goes like a scalded dog. It's the fastest 4.0 SOHC I've ever driven.
I believe the Gen II is lighter. I've never researched curb weights to verify this though. It definitely doesn't hold the road as well, and bumps tend to unsettle it a lot more.
As far as reliability goes, I'd actually give the nod to the Gen II...They didn't have the rear end and/or rear wheel bearing failures like lots of the Gen IIIs did.
Lastly, as a personal opinion, I think the looks of the Gen II is the best of all of them. Especially the Limited. Like I mentioned, I had a '99 Limited for a couple days as somewhat of a "demo", somewhat as a "guinea pig" to diagnose a possible driveability problem, and I turned more heads with it than with my '04 Eddie Bauer!
Second would be the '06-current* Explorers. The chrome front end adds a much needed facelift to an otherwise very bland design.
*Question: Is this actually considered a Gen IV, or just a "freshened" Gen III?