Actually, it's not. But that doesn't matter. The consensus is that both have advantages and disadvantages, and in the end, they are of equal capabilities overall.
I don't know about the console industry or media or whatever but anyone with basic knowledge on the consoles knows their advantages and disadvantages.
The 360 has a slight edge on the graphics card. In the rest, the PS3 has the edge and a quite significant edge with the CPU.
So you could be right. The physics could be the problem since they are CPU calculations and the Xenon is significantly slower than the Cell. However, I doubt physics are the reason of Forza shortcomings. They are quite easy to calculate with newer processors. The hard thing is dealing with the polygons, textures, lighting, graphics overall.
You may be thinking "Shouldn't Forza have more cars and better graphics, then? It's running on a slightly faster graphics card". I wish it was that easy. There are just too many things going on. It's too complex to be able to be narrowed down like that. For example, the 360 has a huge bottle neck to minimize production costs. It has a single memory chip that the CPU and the GPU have to share. If the GPU is using the memory the CPU has to wait and vice versa. It has some advantages, like not being limited to 256mb memory dedicated to graphics like the PS3 is, but the main problem is, it's slower. Also, the graphics card is directly dependent on the CPU since it's the CPU that tells the GPU what to render. If it's slower your GPU will have some limitations. Another thing is that the 256mb of memory dedicated to the Cell is a lot faster (more than twice as fast) than the GDDR3 memory used by the Xenon that it also has to share with the GPU.
PS3 has more power to be squeezed by PD, so that's a problem Turn 10 has to deal with but bottom line, I can't tell the reason really. There are too many possibilities.
My best bet is the code. Code is of equal if not bigger importance than the hardware. It's really easy to see what a better code can do. Just compare GT5P to Shift. Both are using the same resources, GT5P is running at twice the frame rate, but it still looks a lot better.
Also, serversurfer is right about not merging the layers into a single one being stupid. That can't be a reason why Forza have less cars at all since it's just not what Turn 10 did. They must be merging the layers into one texture. If not, they would be too stupid to be able to make the game in the first place.