In fact, I have never heard the performance of a free air sub but I think it should be ok if a good free air sub is chosen.
Not really. A free air sub is alot harder to get it right, and alot of power is required. There are less proper free air subs than subs for enclosure. Reason for leaning towards a free air sub is because of:
1. Boot Space. The E46 boot space is already quite small. Having a box in there makes it worse.
Fair enough, and i think this the most common reason for some people dropping the sub. I did remarked once though...not having a sub is like having chicken rice without the chilli. 
2. The original rear speakers are removed which will leave hole for the sub's sound to travel to the cabin. Installer say one, so I accept. Subsequently, the sound of all the barang barang running around in the boot when the vehicle moves will also travel to the cabin. Sometimes, I have styrofoam boxes in the boot. They 'squeak' a lot.
Haha, this is true, but if your music is loud enough, and not too pedantic about imperfection, then the pleasure of the sub-bass will outweigh the irritation i reckon.
3. Lastly, I have this problem of a 'base lag' from the sealed box. It sounds like the sub reacts a few milli seconds late compared to the front speakers. It can be irritating especially when listening to 938Live as it sounded like the DJ 'breathing' into the mic after every sentence. One installer explain that the reason for this is because the Sub's waves took some time to travel into the cabin. Don't know how true this is. To cure this, I would have to go for a ported enclosure but it will occupy even more space compared to the existing sealed enclosure. Alternatively, soften the sub's amplification. Haiz...