Actually I don't really have much of a problem when racing, really just real life driving is the killer. When I'm in the heat of racing I'm just concentrating to hard to notice anything else. One thing I wish is to be around on Earth long enough to see some truly fast internet in my life. What we have now is cool and all but there's still latency and lag. FM3 online is very good though. GT5 is another story. It all has to do with how they implement the online protocols. I think the 360 "buffers" info thereby creating a smooth online effect although what you see on the screen may not actually be happening. Which in racing or any gaming theory may seem bad but in practical use is good. The PS3 I believe sends the data raw with no buffering. In theory this is great because if conditions are pristine you can play as if you're on the same console but the internet is NEVER pristine and in practical use not a good thing. I'm gonna have to investigate this further though. This is all theory from playing games on the 360 versus the PS3 with the same people on both consoles.
It's a great point, I have to say. What happens when you sidle up to a car in FM3, you get the car position data update a touch late so the previous frame is extrapolated further, but the actual car has deviated from that course, and is now actually occupying the space that you're in? Well, as soon as you all get your next updates, there's going to be a frustrating collision that you never knew was coming.
In GT5, the cars tend to teleport (well, warp, to use the old Quake terminology) about the place, meaning you have to guess the car's actual position as some sort of pseudo average of the "spirograph" the car is tracing out on the track. The visual effect of this warping is quite unnerving, of course.
When it comes down to it, though, the approach in both paradigms is the same: give each other room.
It can't be as bad as the race I had yesterday in iRacing, where the guy I was following kept lagging out and
disappearing. Really quite disturbing, and hampers any attempt to get past. Then again, the wide berth people were giving me was probably indicative of my terrible connection being at fault this time. Or maybe it was my licence level.
So perhaps this might suggest that the pyschological aspects of Forza's method may actually be practically beneficial, so long as you remember to give everyone space!
By the way, the "Hollywood effects" would include the audio distortion "solution" they've licensed, too, apparently. It's a bit worrying that Hollywood had to suggest the image-based lighting, when it's becoming de-rigeur in games now, and has been practical for nearly 10 years already (on the PC; e.g. ATI R300 from '02, vs. the 360's R520 / R600 "hybrid" from '06).
Here's a nice cheating way of doing it, that is faster than the "Hollywood" method of using full-size textured domes, as demo'd on the R300 in "[URL="http://www.youtube.com/watch?v=EHBgkeXH9lU]Rendering with Natural Light[/URL]".