The 346 was supposed to be a "split the difference" replacement for both the 242 and 254, as both of those chassis were discontinued at about the same time. The 357/359 were slotted to replace the 262/257, which were approx the same weight and performance classes. To anyone who loved the 254, a 357 would simply be too heavy.
The reason they went from 42mm to the 44.3mm top end was because of less strict emission regs for saws 50cc and above. At some point, both the 346/353 as well as the 357/359 received CAT mufflers. This didn't workout too good, and in short order the 2 XP saws went back to their regular mufflers. Most of these saws went into pro use and were prone to burning up with the CAT on them. 353/359 stayed with the CAT for the rest of the model run.
346 top ends work real nice on the 350/2150, even with a gasket. I never actually measured the squish on one, but the thinner base on the 346 jugs might have something to do with it.
Does it live up to the hype? For the most part yes. Like the 372 is magic to loggers, the 346 is the same for the tree guys. I've got a waiting list for them whenever I get enough raw materials to build them. I have a couple guys who I've converted 2150/350's for, using their saws. But I'm not comfortable building 346's out of 350's to sell them. I don't know, maybe it's just in my head, but I'd rather stick to the metal case saws for that.
Admittedly, part of the reason for the hype is that the first generation 550's had some issues in pro use, and didn't hold up like they should. That really fueled the whole deal with rebuilding 346's. But the new 550M2 is pretty close to flawless so far, so as they become accepted my 346 waiting list ought to get a lot shorter. The new 550M2 feels more like the spiritual successor to the 254XP to me. Now if they could just get another 1000 rpms out of the 543