I am a little biased as I have owned our C&C35 MKIII for 20 years and have found very few boats in its size range which are crossovers (racer/ cruisers) that can out sail it. It also Is comfortable for cruising and has superior joinery and is well thought out as Saildog has described.
The issue of the basa cored hull is really non issue, and btw not all C&C are cored. If it is one of the cored hull, check on its integrity. These cored hulls were made with sandwiched with very thick laminate and have very little problems over the years with water. Top decks is another story. The end grain basla core is what gave it strength and lightness and why the C&C 35 MKIII or C&C 38 MK III will be a turn faster than the CS Merlin in all points of sail Hence the 117 to 126 phrf ratings. The C&C jib tracks are further in closer to the coach roof therefore its pointing ability is better when close hauled than the CS. Another consideration is if the model has a k/c like mine does. If so it has more flexibility in where you can cruise it as well.
As far as the CS being the "best" Canadian Boat built, I would beg to differ with that analysis. I certainly do not put them above the C&C of that era. Both are good boats. There is a reason there are so many of these C&C still around...had the core been a problem that would not be the case.
As in buying any boat a good inspection and survey is the most important determining factor. I would go for a balsa cored DRY C&C before and boat not similarly cared for. Both are good boats. Get the one which was best taken care of and do not be scared off by the general brush strokes painted of the C&C cored boats by the one poster on here.
The cored hull doesn't really scare me. As you said, there sure are a lot of them around for it to have been a serious issue. Besides, my understanding is that the Merlin is also cored. IMO the Merlin looks almost exactly like the C&C 35 MK III at first glance. There are definitely difference though.