Well, Uncanny Valley is a term I used as well, and it is absolutely applicable here. The damage on Forza is what it is - minor dents, scuffs and scratches to give the impression that you have at least done something to your car. Regardless of what the devs say, it is unrealistic, but at least has a defined, consistent boundary across all cars.
PD come along and try to do something better, and while on the face of it things do look a heck of a lot more complex, I would not say it is necessarily better (different, more extensive, but not better). Maybe it's a combination of the low quality, static images, but the majority of the fronts of damaged cars I've seen look plain weird, like they would make great Halloween pumpkin lantern face designs.
The closer they try to model reality, the more obvious the flaws become when they don't get it right, and from what I have seen so far in limited formats and scope, GT5 is suffering from that right now. Maybe in motion up close it looks a lot more convincing, I guess time will soon tell.