OK, S3 box wont take the torque of the TDi motor. Couple of people have tried them, with motors out of scrap discos, and all have reported box failure within hundreds of miles. Means that you will have to use Disco/Defender box. That means that you will need major chassis surgery to line the combination up on the rails and clear crossmembers etc, and probably propshaft mods too.
THEN, you will have aquired permenant four wheel drive, which will mean that you ought to have CV jointed front axle, rather than UJ jointed series affair. Can be remidied with Stage One front axle, if you can find one, Chris Perfect / TI Console / Zeus CV conversion (Expensive), or Range Rover / Defender /Disco Axles.
Last rout means addition of suspension mods to either convert chassis to coils or axles to leafs, plus hassles with the steering being back to front.
And of course, you'll need to do something with the brakes.........
NO small job by any stretch of the imagination
Whatever way you do it, at the end of the day, you will be spending a lot of time effort and money to make something that is neither one thing nor the other - it will be a long way from being a series and no where near being a defender, and the end product will probably be worth less then either and probably have cost more.
Personally, I'd strongly recomend choosing an engine that will match the S3 box; 2.5TD is about as much as it can handle reliably in oil burner form, Ford V8 about as much in petrol - early RR V8's are just about do-able, provided you dont abuse them too much. Some people have run big perkins or Dihatsu diesil lumps through them, but reports sugest that these high torque motors do give the gearbox a hard time, often harder than a V8 would, and becouse they have such a low rev ceiling need either 3.5:1 diffs and or Ashcroft high Ratio transfer box to be able to get them to do the same road speed as a two and a quarter.
Any way, see my site:-
Modifying Your Land Rover
http://homepage.ntlworld.com/williams73/30_01_Body_02_ModRev.htm
Managing your 'Project'
http://homepage.ntlworld.com/williams73/30_01_Body_01_ProjMan.htm
Engine choices - what works well in a Series Landie
http://homepage.ntlworld.com/williams73/40_00_Body_03_Workshop_LandRover_EngineOptions.htm
Engines 'At a Glance'
http://homepage.ntlworld.com/williams73/40_00_Body_03_Workshop_LandRover_EngineList.htm