I suppose it's a bit like hearing someone sitting too close to the mic on the radio. You can try it yourself by comparing recording yourself close to the mic and gradually further away. The difference is quite striking, depending on the microphone quality. Sure, your eyes might be telling you you're 300 odd metres away (hence "external"), but your ears are hearing the output from a microphone mere inches from the car, simply being played at a lower volume. This implies poor use of reference material (e.g. "far-field", on-track recordings).
Of course it's possible to make it better, that's what I'm talking about! It's just a question of whether T10 truly care about it. They've got (at least some of) the Bizarre Creations people on board, but that might just be Microsoft's typically blind supremacy tactics, and there may not actually be any "soul" or artistic insight behind that decision other than "these guys are known as the best - we need the best". Which, frankly, isn't enough. Kinda like that racer (?) in one of the promo vids for FM4 who gives the game a "thumbs up"...