The Japanese economy was booming in the '80s, and crashed in the early-'90s, and that really shows in the cars. The 2nd gens were just reheated 1st gens, as they did not have any money for real devolopment. IMHO, they feel like tin cans, and the interior feels very cheap and poorly made (little things like the gauge clusters being largely front-lit, instead of back lit).
They were forced to spend some money on the ECU and fuel injection system to comply with OBDII for 1996, which makes diagnosing those engines a lot easier. But I still think I'd prefer 1st gen to 2nd.
That said, I MASSIVELY prefer a 3rd gen Legacy (specifically, the Outback based on it. I have 6 of them, 7 including the Baja). I have an '01 Forester (last year of the late '90s generation) with just under 100k miles on it and in phenomenal mechanical condition, it will be sold soon. Getting out of a '99 Outback and into a '00 feels like getting out of a Corolla and into a Lexus LS.
But the biggest thing. These things are all in the neighborhood of 25 years old. How it was stored/used/cared for will have about 50x more affect on how reliable it will be going forward, than what it was like new, or any generalization any of us can make. $5k is a decent budget, even in this crazy market. Look for a nice clean example that's been loved and maintained. Inspect it thoroughly (or have it inspected), and you'll have years of use to come.