Looks wise 18s all the way. Parked next to my Boss's Vette (with 18s) all of a sudden my 17 inch wheels look pretty small.
Performance, it depends. The advantage of lower profile tires is they tend to (but not universally) have less sidewall deflection under cornering. But there are other factors at work towards handling. For example the tire acts much the same way as the springs and shocks do in the suspension. They absorb and damp bumps, and for the same reason race cars use $5000 Penske shocks; It makes a big difference in handling.
Anyway, you can fit a 275/40R17 on the front of a Mustang. I've run that size on 17X9 inch wheels at all four corners for 3 years. With Goodyear F1 GS's I had no rubbing issues. With my new BFGoodrich g-force KDs (nice freaking tires, but expensive as hell) I do have a bit of a rub at full lock. I pulled a wheel off and found its nearly an inch wider in treadwidth then the Goodyears even though they are both 275/40s which falls into the "eh?" catagory...
Anyway, run 18s if you like the look (which is very nice) and think its worth the extra cost, but I would expect a harsher ride and wouldn't expect any great performance advantage. I wouldn't worry too much about damaging them as long as you watch their air pressure, which is much harder to feel in a low profile tire, and don't rub any curbs.
