I think a few of you are getting confused (understandably!) by the very confusing, misleading and generally bizarre title of the thread
S-Line is nothing more than a trim level on Audis and is a direct comparison to the M Sport line on BMWs. It's just bigger wheels and gay styling on an Audi unlike the slightly more manly and purposeful M Sport package.
Some of you are then saying that the "S" line of cars are akin to the "M" line of cars. This is again nonsense. M cars are BMW Skunkworks monsters and Audi's S cars are just sportier versions of the standard cars and there is no obvious comparison with Audi and BMW when it comes to cars like the S3, S4 and S5. Now the
RS cars, on the other hand are Audi Skunkworks cars and Audi only ever used to produce one model at a time (only very recently changed) and they are every bit as good (some better!) than the equivalent M cars coming out of Munich. An RS4 is every bit as good as the M3 of its day and the current RS5 is every bit as good as the current M3 Coupe in the same way that the C63 AMG is, albeit they are all different in their own right. The RS6 is again an awesome piece of kit.
And for what it's worth, the misleadingly called "S line" of the thread title ... has been around for decades so it's not like Audi suddenly had to create it to respond to something. My Sister had an S3 in the 90s. It was only a 1.8T if I remember correctly but back then it was rapid and most desirable. I also remember a friend of mine's Dad had an S4 around the same time. That was a V6 BiTurbo and a beasty!
I do think, though, that there has been a slight convergence in this generation which is why some people have been comparing the 335i to the S4 but I can't remember a generation where that was ever previously the case. It's probably since Audi dropped the thirsty 3.2 Quattro from their range of most cars in search of greener credentials since that was always the direct comparison with the equivalent BMW 6 pot and when Audi gave their six cylinder a make-over they went a bit more overboard than BMW and created something more akin to their old S Models so the only petrol 6cyl 4-series Audi is now called the S4. The last gen S4 had a 4.2 V8 and sat along side 1.8T and 3.2 petrol variants in the A4 whereas now, VAG cars are all blown and they have different variants of the TFSI engines, that being two 1.8l and a 2.0l in the A4 range. There is no longer a V6 A4 since the 2.0 TFSI is every bit as good as the old 3.2l (apart from the sound) and drinks less fuel, in the same way that the new 328i is a blown 2.0l and a very good car. If you want a V6 in an A4 now, you go for the 3.2 TFSI which is supercharged, you get Quattro, sports suspension and some styling and it's called the S4. BMW don't do this and I don't think the 335i and S4 are apples and apples. The S4 is a higher spec car than the 335i and more expensive to boot. If you had a 335i xDrive with the M Sport package and some toys then maybe ... you're looking at BMW's S4
So the moral of the story is that "S-Line" is a trim level and Audi haven't created their range of "S" Cars in response to anything: they've been around for years