4th edition isn't bad.
The reason there's so little material in the red box is because that's the 'Essentials' line. Everything was separated into boxes and revised. I think all you need now is the monster box (very good, I like the tokens) and the DM box. I think that would be another $60-$80 for the two. You could also buy the original 4e books for $30 each (or get pdfs). Other random supplies would be grid paper or some kind of board to write on and something to represent characters and creatures.
Now, as for the debate between 4e and 3e... I say go with 4e. 4e is a lot more streamlined and allows all the characters to do something. 3e is terrible for non-casters, as the casters will eventually have a spell to solve all sorts of problems and the non-casters are stuck saying "I hit it" over and over. 4e's rules focus on combat and does it well. Everything else is left for the DM and players to decide and have fun with.
4e rituals cover most of the 3e utility spells, anyone can learn them, and you can always make your own. Skills can be expanded upon if you feel there are too little. What you will need to do is adjust some of the numbers (lower skill DC by 5 or 10, lower monster AC by 5 or something) and maybe cut monster hp in half to speed things up.
Link XL1 said:
then version 4.0 came out and made some radical changes, a lot of people feel like they dumbed down the game and made it more like a video game. most dnd players dont like 4.0
People hated 3e because they thought it was being dumbed down and made like a video game too. Instead of WoW, the hot button video game was Diablo.
Here's an example: http://www.gamegrene.com/node/20
And people hated AD&D 2e, or even AD&D compared to Basic. The big thing is to find what you like and have fun with it.
IMO, run with the 4e D&D stuff you have (your game store should have the 4e Players Handbook, Dungeon Masters Guide, and Monster Manual if you got the Red Box from there), try some of 3e, and have the group decide what is more fun. You guys may like the combat of 4e more, but the detail of 3e. You can try mixing or borrowing ideas from the two.
Actually, read stuff written by Gary Gygax (AD&D 1e). That has lots of good ideas for constructing scenarios.
EDIT: I should also add that you don't HAVE to play D&D to play PnP RPGs. There's a wide market out there, and a lot of companies/designers don't push their product like WotC does with D&D. A lot of these games are more simple than D&D. You can still play D&D, but know that you're not limited to what's in the 'official' books. Once you get a good summary of the basic rules in the core 3 books (Players handbook, dungeon master's guide, monster manual), you should be able to create you own material.
I like 4e because I can create monsters and traps and have a good measurement of its power. 3e has that, but there are still holes that make it difficult to measure how strong something is.