Both have their merits and it's entirely dependent on the car and the track in question, but in most cases, at least in theory, adding mass is going to hurt your car more than losing power (at least in GT5's system).
For example, if you're doing a wide-open track (i.e. an oval), horsepower is by far the most important as that will improve your top speed, while acceleration and cornering aren't tremendously important on those tracks. Meanwhile, an extremely tight track will obviously benefit more from lower weight than additional horsepower as you'll rarely ever come near top speed and speed coming out of corners will be more important as well as acceleration coming out of corners.
As I mentioned, the car is the other factor, specifically the power curve. If you have an engine that hits peak torque near the red line (i.e. most Honda engines), you're sacrificing very little power over your usable spectrum, since it's just the last few hundred RPM that are being lowered and the area on the curve (which translates to average HP) lost is not very substantial. It'll lower your top speed on the aforementioned wide-open tracks, but on most tracks, you won't miss that extra power a whole lot. Meanwhile, vehicles that have high-stroke motors (i.e. Muscle cars) get hit hard by power limitation since they typically hit peak power well before the redline and they lose a lot of area on the power curve (they'll lose a semi-circle while the previously mentioned Honda motors will lose a quarter-circle).
Here's a sample car (Corvette ZR1 RM) that gets hit very hard by power limitation to meet a 650 pp limit:
Full-Power, 1300 kg (200 kg all the way to the front), 25/30 aero:
84% Power, 1100 kg, 30/30 aero:
In the 84% Power version, it hits peak power at 4600 RPM (shortly above peak torque at 4500 RPM in both examples, which is why I used this as an example) and basically stays at peak power right until 7100-ish RPM. While this would be fantastic if you could use ultra-wide gears (would allow for an insanely high final gear ratio), it's just not possible in GT5 without making your lower gears way too short. In fact, you'd have to set all gears 1-5 at the highest setting and gear 6 at the lowest to cover that spread in the 6th gear. It would be horrendous. In most cases, you're going to have a 1500 RPM spread, maybe a 2000 RPM spread and the spread usually gets shorter in the higher gears.
The highest spread I could get that had the same RPM spread in every gear allowed for a 2100 RPM spread. Now, in a 2100 RPM spread on the full-power engine, you're losing 133 peak horsepower and, based on the rough semi-circle shape of the power curve, you're losing an average of 39 horsepower across that spread, which is a significant loss.
Area of a semi-circle = (Pi*r^2)/2 ((3.14159*133^2)/2 = ~27786)
Now we want to find r for half the area ...
27786/2 = (Pi*r^2)/2, solve for r. /2 on opposite sides cancel each other out.
SQRT(27786/Pi) = ~94
133 - 94 = 39
So we have a constant 690 HP over that spread compared to an average 729 HP over that spread, which means it's a 5.6% loss of average power. Like I said, that's a significant loss. However, adding 200 kg adds 18.2% more mass PLUS you had to sacrifice some downforce.
What does this mean ?
Well, acceleration = force/mass, with horsepower translating directly to force. With such a simple equation, it's quite easy to see that the 18.2% mass increase outweighs the 5.6% power gain in the full-power example, so the full-power car is going to accelerate slower, especially out of the gate. Theoretically, at least at speeds where air resistance isn't much of a factor, the lower-weight version should out accelerate the higher-power version by a pretty decent amount.
Edit: One thing I did forget to take into account (it was 3 AM local time, forgive me) was that you can narrow your gears with a custom transmission. Obviously, if you narrow the RPM spread as you go up in gears and shift properly (at the point where power in gear 4 = power in gear 5, for example), you can further increase the average horsepower utilized, thus increasing acceleration. Downsides to this method are a different shift point in each gear, so you'll have to memorize them and you'll need to use wider gears at low speeds, so you'll have a further disadvantage in terms of low-speed acceleration.
Acceleration = Advantage Lower-Power, Lower-Weight but can be mitigated at higher speeds with gearing/shifting and overcome at very high speeds due to air resistance.
Obviously, more weight is going to hurt your ability to corner, plus the fact that you lost downforce and the weight had to be placed as far forward as the game will allow is only going to make matters worse. In addition, the lower-power, lower-weight vehicle is less likely to spin its tires and, combined with the lower weight, it means that the tires won't wear out as fast.
Cornering = Advantage Lower-Power, Lower-Weight
The top speed of a vehicle is determined by its ability to overcome resistance and, barring a gearing-related restriction, it basically comes down to Force (directly related to horsepower) = Opposing Force (air resistance + rolling resistance). The increase in mass will contribute a marginal increase in rolling resistance, but the big one here is air resistance (which is a cubic function of velocity. i.e. doubling speed increases air resistance by 2^3 or 8-fold), so the 133 HP (19.3%) should allow for a CURT(1.193) = 1.0605 or 6.05% increase in top speed with proper gearing. I didn't run a test run, but using my B-Spec driver in a race, he hit about 315 km/h on the straight on the Indy, so I'll assume that's pretty close to top speed. Theoretically, the High-Power, High-Weight example should hit a top speed of at least 334 km/h (208 MPH, it'll be even higher since downforce was reduced and, thus, resistance reduced), which would make a very large difference around a track like Indy or the new DLC Oval (forget the name ATM).
Top-Speed = Advantage Higher-Power, Higher-Weight
Side Note: GT5 has terrible power/torque graphs.
