GT4 is supposed to be a driving simulator. And while painstakingly reproducing every cars, their physics, handling, tracktimes, tracks, drivers in cars shifting and steering etc, the lack of damage has always been a problem in the serie's.
A lot of people complain about the "double punishment" when you crash into a wall or something. Well, that double punishment counts for damaging the car in such a way that you normally would have to quit the race since you wrecked your vehicle. So if you want a car-simulator, it is acceptable that you are punished for reckless driving that would seriously **** up your car. You better brake early enough and be carefull with that precious thing, so it stimulates decent realistic driving. They probably have arcade modes or optionable "no-penal-modes" if you single-race for the people who like to go wild.
For me, one of the biggest anoying things in GT3 was still the usage of fellow cars to take that corner and effectively bump off them with some speedloss when you hardly braked for a certain corner. The other car could be used as a brake, and they were slammed into the wall. That was lame driving, which took a great hit on realism. In fact, I could do better laptimes if I overpowered my car with huge tuningkits, drive like a maniac into a corner, slam the car against the wall to brake, and accelerate out of it. If I would correctly brake at the best time without crashing, driving the ideal line, I would be slower sometimes.
What they need to do, besides improving the AI much more (but I heard the Prologue AI isn't near the final-AI build anyway), is calculate the impact factor/force and cling a resulting penal to that (more seconds for bigger impact) for both involving cars, maybe lower topspeed for the rest of the race from certain impacts if that was possible. Burnout2 has a great collison-detection too with crashes, the CPU intensive stuff lies more into the graphical result of that formula.
But wouldn't it be more logical if they made a 2D topview of the car in the corner of the game-screen, and highlight every damaged area in red, yellow or green or so, and make a simple calculation-formula on that in connection to your car's performance. That could be acceptable for manufacturars, cuz the damage wasn't actually shown in-game in 3D. Little damage would take less penal-time, or less time to fix in the pits (tires, wings, bumpers), and bigger damage would be more critical to performance and un-reparable in the race. Maybe even undrivable that you would have to quit the race. You would have to fix that in investing money after the race for repairing. Technicly I think that collision-detection/calculation wouldn't be that hard to implement.
It would be ideal if gamepay-wise they also could recognise that the car that is the 'cause' of a touche, either by leaving the race-line bumping into a fair and steady racing car doing his race, or 'slamming the door shut' into a corner when a car is inside more than half, then that 'bad driver' would be penalised more than the one that is the victim of his behaviour. A so called referee of racing, just as the FIA does in F1 when a race-incident happens. I think that last thing is too advanced for the PS2 though, since all the other implemented things use so much resources that I can hardly imagine it can be added. AI is a challenge on itself, and even the FIA sometimes needs to look at incident for a minute or so after they decide who's fault it is and penalize him.
Maybe PD can calculate the distance between cars in-game. AI-cars could be randomly aggresive in blocking as individual drivers, but when another car has the beneficial position of the corner, they should back off, make room, and leave their ideal raceline instead of shutting it with a 'touche'. The fine theoretical line between blocking smartly by defending the ideal programmed/scripted raceline as a humanlike car on one side, and making room by letting go on the other side is something that should be technicly possible if they could calculate that distance in every overtaking corner (normally the most used location of overtaking) between the cars. If half of the overtaking car is alongside/passed his frontrunner, they should make room and let go, as a rule.
And now I need a beer. I typed myself thirsty.
/editted some typo's and added stuff.