Chance are one or both of you are NAT 3. I had the same problem with one of my friends back when we first got GT5. I went through all the suggestions of port forwarding, setting up DMZ, running wired instead of wireless, etc., etc.. Now I have no connection or lag problems unless my internet is completely down. I run 7 online races a week in 5 different series, two of wich are in Europe (I'm in USA). If you can get at least NAT2, on one of your system, prefferably both, it should solve your problem.
1. You need a good connection. Wired is ok, but no better than a PROPERLY SETUP wireless connection. All the people saying you need wired just don't know how to setup a decent wirless connection.
2. Get UPnP working. This eliminates the need for useless port fowarding or DMZ zones.
3. Clearing the cache before an online session may be a good idea. I do it, even though there is no proof it actually helps. (it doesn't hurt anything, so there is no sense not doing it; this will do nothing for the problem you are complaining about though)
4. Go to a networking forum for advice. (dslreports is great). This is a game forum and you have to sift through a lot of BS from the "experts".