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The oil mod thing you're thinking about is likely the oil sump modification to increase it's capacity, attempting to prevent oil starvation during hard cornering. You can perform a search for to see a good discussion of this issue and the 996. The bottom line is that it doesn't appear to be an issue with 02 and newer 996's.
The 40th Anniversary 911 was the first 996 to have LSD and PSM. I find that the LSD works nicely on the track and for autocross's coming out of slow corners with the power on. I keep PSM on for track days (safety) and off for autocross's (better times). Hope this helps a bit.
99 C2's (not C4's) had LSD with optional T/C, or no LSD and PSM. From 2000 on all had PSM and therefore no LSD anymore... until the 40th anniv 911 which has PSM with LSD but with very low lock up rates.
Carlos: PSM wasn't available on the 996 C2 until EGas was made standard so it wasn't available in 1999. PSM has always been standard on the 996 C4 but is an option on the 996 C2 (it is part of the 40th Anniversary basic package though).
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