There's not much difference between a 4"-5" gun, but there's a big difference between a 3-4" gun. For most self-defense situations, either the 4 or 5" will do; very little is lost by the way of sight radius, and some folks find that the weight sacrificed for the 4" version's carry comforts is a desirable option. There are damn few 4" guns that weigh so much as to be uncomfortable, and the 4" barrel doesn't normally pose any problems standing or sitting. It shouldn't 'dig in'--the barrel shouldn't point at the body no matter the holster design or barrel length, and whatever part of the frame/hammer/grip saftey does dig in will dig in no matter the size 1911 you choose.
The 3" really chops the sight radius down, and velocity is minimal. Most guys still use hollow point SD rounds in this length, but in reality, hardball ammo will probably get the same results because expansion is minimal at 3" velocities.The only reason I'd carry a 3" would be as a BUG so I could use "common" magazines.
3" IWB can be problematic if the holster isn't designed well. Most holster makers incorporate "wings" on their IWB 3" holsters to stop the weight of the ammo-loaded grip from tipping the gun over the belt. Then again, some don't use wings, but I've not heard about their performance.
Lastly, as someone mentioned, there is a high percentage of folks who don't trust 3"ers because of reliability problems. Hell, a few Baer owners complain about reliability with the 4" Comanche series because of Baer design-flaw -caused problems.