My 1997 Impreza Outback Sport (in avatar) was the best car I ever owned. I put serious mileage on it, rallycross abuse, TSDs, autocross abuse, daily grind, heavy things. It put up with everything until it was totalled in a parking lot. I dropped an 02 Impreza transmission into it to repair a screaming input shaft bearing, but it probably could have gone for several more years without doing so.
Aim for a 98-01 if you can; they have a much better interior (with cubbies and an easier to dismantle centre stack, particularly HVAC) and sometimes they even have a waist spoiler. Depending on the year, you also end up with hydraulic clutch, a more modern shift linkage and electronic speedometer (with digital odometer). As far as I know, no year had rear discs.
1997+ EJ22s are higher compression but are interference engines. I want to get another one one day, although the stiffer chassis of the 2003 Impreza TS I'm driving now sure feels a lot better.
99+ headlights improve the looks substantially, but you do give up the nice spirit level inside the OBS headlights that's intended to adjust the car's lighting for off-road. I installed a Daniel Stern H4 wiring upgrade kit and ran 85/90W Osram H4 bulbs for TSDs, and was okay without a lightbar but would have preferred one.
First thing you want to do is the usual Subaru tests; tight circles to test for a failed centre diff (not as common as people say from mismatched tires - usually happens from morons pulling handbrake turns without putting the clutch in first), checking for coolant milkshake, and looking for leaking or damaged CV axles. Since these cars are 5x100 (tiny hub), you've got the usual wheel bearing concerns at all four corners as well. Any sign that the owner doesn't understand the unique maintenance requirements of a Subaru (such as having put mismatched tires on) is probably a warning sign. As the cars are getting older, I'm finding myself standing in the front yards of more and more people who are treating them as consumables rather than an asset. I imagine that's how DSM guys felt a decade or so ago.
Rust is the only real concern; if you get one with an intact rear quarter make sure you take some precautions to keep that area clean. The fuel filler neck has a 'springy' shield that's intended to protect it against gravel but just traps salt and grit in there (eventually eating a hole and causing an evap code) if you don't keep it clean. Also watch out for leaking tail lights; unlike the later cars, these ones use a butyl ribbon to seal the tail lights and will let water into the hatch if the ribbon has gotten old. Some 3M Windo-Weld fixes that right up.
Bad piston slap at startup and fuel contamination of the oil will probably happen on the higher mileage examples (mine had 365,000 km when it was wrecked); Rotella T6 quieted down the slap, reduced the rate of oil shearing and generally made my life more enjoyable with the car. As always with Subarus, avoid unknown parts-store oil filters; Subarus run massive oil pressure and most oil filters have very weak bypass springs. Tokyo-Roki, the Subaru blues or Napa Gold/Purolators are your best choice here.
I installed a 17mm rear sway bar from an 07 WRX wagon and it made the car a lot more enjoyable to drive around town; upgrading the front swaybar is more difficult on non-turbo Subarus as the front subframe and crossmember don't permit the use of turbo front swaybars, but you can mix and match rear swaybars. The cheap "hot ticket" for the front swaybar is a 25mm front swaybar from a Tribeca.
The seats are great; for more bolstering install the seats from a 98-01 2.5RS coupe. Installing a post-02 seat will lift you about an inch, so don't do it if you're tall.
The OBS package provides springs that give you an extra inch of lift; their rate is near-as-dammit unchanged so the additional travel is very welcome when travelling offroad at high speeds, such as rallycross. The aforementioned swaybar and dropping sidewall heights helped tune out a lot of the wobble when cornering. Ball joints if the car feels like it has memory steer or blows around too easily in crosswinds.
If the shifter falls to one side on the pre-98 models in neutral, it's just a small broken return spring. You can get a new one from the dealer for about $3 but it's very easy to convince the previous owner that it indicates something is broken in the shift linkage.
You can make some money trading the vented/scooped hood to an unscooped Impreza owner so they can get some street cred pretending to be a WRX. I bought these from the junkyard whenever I could, but be aware they don't fit inside the car.
As with all pre-03ish Imprezas, the ABS is bad at best and life-threatening at worst if you don't have any experience with how it operates. You should not blindly rely on it; forcibly engage it on ice or loose dirt to get used to the unusual way in which the early Subaru system kicks the brake pedal back upward toward you, reducing the amount of requested brake pressure. I disabled it on dirt during competition altogether by pulling the fuse.
For ground clearance a lot of the Outback Sport exhaust stuff (including the header) is specialized from a regular Impreza; just get a decent muffler shop to weld things up if you get leaks (the cat housing has probably ruptured its welds by now). Exhaust gaskets are normal Subaru stuff and should be replaced if you drop the exhaust or you'll get nasty leaks, especially at the header on the single-port EJ22s.
As a result of the ground clearance, Paul at Primitive has an Outback Sport-specific skidplate that you need to order instead of the usual 93-01 Impreza one. Otherwise it won't clear the unique headers.
The JDM Subarus getting imported into Canada are all of the same general chassis, so parts are widely available and often quite cheap if you're like me and buy a Rubbermaid container full of parts off the local forums whenever one of them wrecks.
KYB GR2s are the OEM part. The struts are identical to other Imprezas; the (taller, as mentioned) spring is the only big difference.
Wheels: Take-off OEM alloys are really cheap and really good (usually Enkei depending on what car you're taking it from). I've gotten entire sets for free or a mild trade, and 15" tires are cheap if you don't care too much about speedometer accuracy.
I should really start copying these essays and putting them somewhere. You guys will buy my book, right?