Mechanical damage like broken steering or broken breaks are welcome in my eyes. The system from Forza Motorsport is well balanced in my eyes.
What I wouldnt like to see is brake fading, engine blowups or so. It does not help competitive racing, because even when you are better than your opponent, you lose because of such stupid things. Even the power gain through oil changes is stupid in that way and certainly not realistic.
It will always stay a game/simulation and I think we all like it the way, that we have ideal situations in such a game. We dont have to deal with rust, brake wear, electric problems and other things that are painfully bugging us car enthusiasts in the real world.
What I would like to see more, is visual damage. Body panels that fly of, mirrors braking off after a contact with an opponent and more. The face on the guy behind you, when your spoiler slams in his windshield would be priceless.
GT 5 and other games have improved in the visual damage, but it has to become more realistic.