I recommend the Mugen MBX 5 Prospec, but that's because I have one.
Honestly, though, I recently went through the same issues. I had run 1/8th scale before, but not on this level. I chose the MBX5 because it has remained relatively unchanged for two years and comes equipped with everything you need as far as upgrades. The Kyosho sp.2 is the third virsion of that car in like 9 months. I don't want to buy something that is outdated in so short a time.
The mugen is dialed and probably hands-down the fastest car out. Sure, pro's win with the other cars, but the guys who pay for their stuff buy the Mugen.
Engine wise I recommend looking at Novarossi's selection of engines. They are all good, and if you get the one that matches your track layout, you'll rip up the competition. O.S.'s are good, like the V-spec, but it has some longevity problems in the crank bearings. Make sure you get a buggy engine, though. Although road engines boast a higher horsepower rating, it is at an RPM range that a buggy can't utilize effectively. check out www.caralinasrc.com
for specs on their engines and recommended track usage.