I'm currently up to season 3 in my continuing retrospective. My rediscovery reminds me that, as far as single, self-contained episodes go, it's my favourite season.
The opener, "Mr. Ruggerio's Neighborhood", is possibly the most unique of all episodes; it probably made a lot of people gasp when it first aired ("Fuck, where's this show going?"), but it's different, well-paced and fantastic - the FBI scenes are extremely witty. "Another Toothpick", "University" and "Second Opinion" is a great mid-season run of great consecutive episodes - possibly the most consistent since the first five of season 1; "Employee of the Month" and "Amou Fou" are top rate, and "Pine Barrens" might be the best episode ever.
Season 3 is the turning point in the show: the serialised narrative becomes more disparate and fragmentary with episodes becoming more self-contained, characters coming and going, and audiences more frustrated.
I'm a sucker for it, though, because the writing becomes richer, the acting more established and confident, the humour darker and the visual style more crisp and profound.