Thanks for the glowing testimonial Trumpy, but I have to confess that I'm somewhat of the "old-school" of telecommunications and I haven't kept completely abreast of the latest in LAN technology.
You'll find that in general CAT3 is suggested as being suitable for operating bandwidths of up to around 16MHz, or around 10Mbps transfer rate. That's very much an average figure though, as the actual usable bandwidth will depend very much upon other variables, such as the network driver cards, levels of EM interference in the building, and so on.
In technical terms, CAT5 cable with its tighter twists in the pairs provides greater longitudinal balance, otherwise known as common-mode rejection. In other words, it is better able to reject intereference from nearby EM fields and thus allows operation to higher frequencies. The twisted pairs on a LAN are basically working the same way as the twin-lead transmission line you might connect to your TV antenna.
Whether to wire CAT3 or CAT5? I don't get much call for either in residential work in my area!
Personally, I think that a 10Mbps network should be more than enough for any residential usage, and I would certainly be happy with it. That said, with the way software is going (i.e. shuffling far too many binary digits around for very little actual useful data), some people will find it too limiting.
If I were wiring for data in residential, I think I'd explain the options and leave the final choice to the customer.
