Big post (apologies, I probably could summarise it better, but there's really more to be done yet): take it for what it is, and don't be afraid to experiment for yourselves. 
Anyway: I've found my new preferred settings to be 5.1 (virtualised to stereo headphones) with Large Theatre dynamic range setting, menu music and sounds right up to 100 - 120, with sound effects down at 35 - 45. This seems to work best for me when racing, but is generally a bit quiet in replays.
Now, the 430 PP Seasonals, specifically the Daytona one, have opponents who all have Sports exhausts (at least), which seem to be louder than they were before this update. When in-car (or "bumper"), the sound is fine and my car (the 20V Primera, totally stock) was never fully drowned out, although you could tell those other cars were loud by comparison.
In chase view, or the roof view, there's no chance. In a pack, there's too many cars to be able to distinguish your own car unless it's really distinctive, which the Primera isn't, and one or two can still be distracting when they're that much louder.
I also tried a one-make race at Daytona in the Primera, and the same held true. In roof or chase cam, it was difficult to pick out the sound of my car (even worse now they all sound identical), but in cockpit or on the "bumper", it was fine. Tyre noise is also a big contributor, but that's probably only "realistic" at those speeds. Still, it would be nice to be able to properly hear your own car (glad I only use bumper view
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With Living Room dynamic range settings, even in the cockpit view, the volume is reduced slightly when you approach another car. That's because two cars are louder than one, and that seems to be enough to trigger the compression. The reduced volume makes it harder to distinguish between sounds, and flat-limiting (which is what it sounds like GT5 is doing) is undesirable given our hearing doesn't have a flat response (this is why hardware limiters, like the Dolby Volume mentioned earlier, are so superior - they often limit in a way that retains the natural feel of the original signal). This "flatness" would probably sound worse on hardware that is not consistent in its frequency production across its operating range of output power (this is where even mid-level headphones are useful), but there is always the possibility it may instead compensate slightly - yet more variation to keep track of.
I also noticed the slight lag in the limiter picking the gain back up again after passing a car. It seems it might have a two-step sensitivity, i.e. a fast-response "layer" and a slow-response "layer". The slow release was very subtle, though, and resulted in a restoration of clarity (mid-highs) to the sound after a few seconds.
* The effect was less pronounced in Small Theatre, and non-evident in Large Theatre, except that auditory masking can give a similar-sounding effect, even if the overall level is left unaltered.
* Somehow, the effect doesn't appear to be as bad with the stereo mix, although the roof and chase cams are probably still too vague.
* I did all of these tests without music in the race. Having music on effectively raises the "noise floor" (in terms of the "signal to noise ratio"; your engine sound being the signal you wish to hear), meaning that when the sound effects are compressed, you'll find it even harder to hear the quieter sounds - a simple fact of how our hearing works.
* I need to test a few more cars, but I thought I'd share what I've found anyway, in case it helps anyone else.
So, opponent cars are seemingly a bit louder (along with sports exhausts being closer in volume now to the semi-race), and that seems to be messing with the dynamic range compression, which presumably wasn't tweaked to suit. I'd recommend you turn it off (i.e. choose Large Theatre), if you can get away with it, and adjust the volume levels to suit; then you could rely on your hardware for dynamic range control (look for volume / level limiting, or possibly some ridiculous term spawned of some marketing department), which is almost certain to be better at it.
Or, like I've chosen to (for now...), you could just leave it "open"; it works well for headphones, and probably would for most home theatre systems, too.
Not only are your audio settings important, but the different views now, once more, present vastly different listening experiences, so we need to bear that in mind, too.
Thankfully, it should be an easy fix for PD, but I suspect an overhaul of their "compression" method would be required in the long run, preferably by changing the fundamental volumes of the different objects in the game by way of "profiles" (or how they do between patches), rather than trying to simply compress the output stream.
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