Final drive ratio is a matter of (1) careful calculation of engine powerband, transmission gearing, acceleration vs top end tradeoff and driving style, or (2) whatever you prefer.
I think most scooty-car drivers these days opt for more off-the-line oomph and acceleration than top-end range. The tradeoff for 3.73 or so and up is that your engine will wind pretty high at freeway speeds - but the five-speed helps cure that, so lower rear gears are a better choice. With the overdrive you get both off-the-line scoot and reasonable highway RPMs.
I went with 3.55s in my rebuild because that was the best tradeoff between reasonable OTL performance with acceptable highway revs... but I have a C4 and thus a 1:1 top gear. Cruising at 3000-3500 RPM just wasn't something I wanted to live with.
All that said, 3.20s will be fine, but if a new rear is in the budget, 3.73s would give you more OTL grunt without costing anything at the high end. You might be disappointed with your current gears, but you can always do the swap, see how it fits your driving, and then pop in a new rear (with or without posi) if it's not what you want.
I've been running a 3.55 with a T-5 an think it's great. I'm putting a new rear end in (hopefully will be running by next weekend) with a 3.89, just for kicks. I have the 3.89 laying around which is a posi. I had it in a c-4 and it was way too much gear for a 3 spd automatic. I changed it b4 I put the T-5 in. So, since I'm putting in a new housing, I decided to give it another try.
I'm predicting that it will be too much gear for 1st gear. I feel like the 3.55 is just about right as far as what I get out of 1st.
The only thing for me is that I am running a straight six. It has the Australian Head, it's zero decked, headers, 264 cam, .06 shaved off the head, and a holley 2 barrel. I wanna stay with the 8 inch rear end so I am wondering if it will be worth it to go with the 3.50:1 8 inch rear end or if the 3.20:1 would be as good.
Unless I'm confused, the earlier post of yours indicates you have a 7.25" rear end, which cannot be swapped with a 3.5:1 rear end. The 7.25" rears are carrier-integral, which means they are not swappable like the pumpkins of the 8 and 9" rears. Now you might be able to rebuild it with new gears, but in all likelihood, the rear will probably break on you with all the extra torque of the six cylinder you have. If I were you, I'd run the 3.20:1 until it breaks, and then swap in a 8" rear end with 5 lug axles, which means replacing wheels and brakes as well.
Mo, that 3.95:1 ratio for low gear in your 4 cyl T-5 is pretty low. I wouldn't want it with a ratio lower than the 3.20 you have in the integral rear end. With mine, I have to shift before getting much over halfway through a stop light as it is. It does help to get the car moving from a standstill, especially when the AC is on, but it's geared down like a tractor with the 3.20. Also, the 4 cyl T-5 has a 0.79 overdrive instead of the 0.63 most V8 T-5's have. So, if you go with a lower rear end, you'll not only have a low gear that is REALLY low, but your OD won't help much on the cruise RPM over stock setup. Hope this helps!