There are cars, especially things like Skylines, with amazingly high horsepower figures. IIRC, there's a quad-turbo Viper that pushes around 1400hp. Check out Supercars.net for some real beasts.
However, it would be very very difficult to make these cars driveable at the speeds you can reach in the game. GT2 doesn't really simulate fluid motion physics of the ambient air, which is the problem; forces of air resistance and drag, if they would even let you reach those speeds in those cars, would make them nearly undrivable.
Instead, think of it as more of the car being on a 'rolling road' (similar to a dynamometer, big 'rolling pins' that you situate the tires on, so you can drive the tires while keeping the car stationary). Without the effects of air resistance, you'd probably be able to simulate these speeds in these cars.
As for handling, it's better than most game,s but not accurate by a long shot. There are so many different forces working on each wheel and the rest of the car, that the playstation just can't handle all of the information. Instead, GT2 seems to be programmed to perform 'this drivetrain and this weight and these settings act like THIS'. It's close, and much closer than almost any other game at the time of release (there are PC games that are better, for obvious reasons).
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