It definitely works when you do it in a way the game agrees with. Unfortunately doing it the way you'd normally do it in real life will have you stuck in neutral 90% of the time, trying desperately to get the bloody thing into the proper gear.
Rowing gears as I do in other games is really not worth the effort in GT5 at the moment, it simply misses changes (up and down) too much, so even on regular shifter cars I just use the G27's paddles, even though it pains me to do so.
I hope they fix it though, since I assume they'd have picked up the same problems with the new wheel they've been developing.