I would agree on PARTS on the AI engine (probably because it controls more cars too), but some I find actually better, like the changes of pace and the fact that with a comparable car the AI is actually competitive.
GT5's AI makes mistakes (quite a lot of them actually, they collide with each other, get into crashes, go into the sand quite a bit), they do become less and more aggressive dynamically depending on racing conditions and so forth. I did a lot of observation in the last few days (even because I have to deliver a review soon), and I did see quite a lot of things that many people missed.
Great work clarifying and debunking the obstacle avoidance myth. Now, how about a comparison with all vehicles moving. Perhaps you should run side by side comparisons of how the AI handles moving vehicles. Perhaps a side by side of Laguna with you driving at static speeds, 50, 80, and race speed. I think we'll see that GT5 does not hold up as well, either because it is not making enough "decisions" or does not have enough alternate routes.
For the record, I think the AI in Forza is allowed to cheat. Let me explain. Under hard braking, the AI cars appear to have ridiculous stopping ability beyond the scope of the physics engine. While this is not realistic, it helps reduce the number of decision points the game has to process, and saves us from the constant rear-ending.