It would pay to bear in mind, Tony that there’s an all-new A3 due in Europe next year (Check out Carsguide’s overage of the Geneva Motor Show when it happens) as well as a major upgrade of the A4 that will include new or comprehensively revised engines and mostly new body panels and interior.
Is the heavily discounted A4 a dealership demonstrator? As that might explain why the A4, even though it’s the bigger car, has had its price slashed, despite having all that desirable kit thrown in. That said, the A4 lives in a market segment (mid-sized sedans) that is not doing terribly well right now (in Australia and elsewhere) so maybe Audi has too much stock of a car that has plenty of competition (Mercedes-Benz C-Class and BMW 3-Series) in a struggling market.
The bottom line, however, is to buy as much car as you need and don’t make the mistake of buying a smaller, cheaper car when it won’t easily do the jobs you have in mind for it. Again, though, the A3 is a pretty practical hatchback (or sedan) and owners don’t seem to complain that it’s underdone in any major way.
So, drive them both, and see which one you like to pilot. And then start throwing offers at the salesman and see how much he or she is able to bend on either car. By the way, the virtual cockpit is brilliant technology.