Well, as far as I'm aware they record the sounds of the engine and the exhaust at different revs, but everything with a standing car and thus an unstrained engine. A lot of people have identified that as the main problem for the lack of life in their car sounds. I however think that this would still be a proper basis for lifelike car sounds, since all necessary effects could be added in post production.
However, if you think about it, you will notice that almost everything in the game is polished to perfection. Kaz and his people are very picky about all kinds of details, which, in my humble opinion, makes them focus on the small bits instead of seeing the big picture. The tracks are very clean, the car models are very clean, the sounds are very clean - everything is honed to perfection. It's just their way of doing things. And that is the very reason that certain things are missing a sense of action, such as the sounds.