Depends on what you mean by "better". Personally I prefer the older style 4-matic myself. The new system has all open differentials and brakes any wheel that reads faster than the others. The older system has a locking case and diff. If there is wheel slip it LOCKs the case and diff. It's not as smooth and seamless but I really like the posistive engagement it gives. Granted it is prone to more failures but that is the price of feeling that case lock and knowing that you have the grip.

To answer the originals posters question, the transfer case does have a tendency to leak hydraulic fluid internally. The typical repair is to replace the T-case with the updated unit which has less tendency to leak internally.

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90 300TE 4-M
Turbo 103, T3/T04E 50 trim
T04B cover .60 AR
Stage 3 turbine .63 AR
A2W I/C, 40 LB/HR
MS2E, 60-2 Direct Coil Control
3" Exh, AEM W/B O2
Underdrive Alt. and P/S Pulleys,
Vented Rear Discs, .034 Booster.
3.07 diffs 1st Gear Start

90 300CE 104.980
Milled & ported head, 10.3:1 compression
197° intake cam w/20° advancer
Tuned CIS ECU
4° ignition advance
PCS TCM2000, built 722.6
600W networked suction fan
Sportline sway bars
V8 rear subframe, Quaife ATB 3.06 diff