Ok, so here are my initial impressions, after a few hours of play. All impressions using 'Extreme' settings, and then when I got tired of the clutch (on my MS wheel I have to use the A button for clutch, which although it's nice to be able to, isn't a whole lot of fun), CUSTOM settings with the same as Extreme but with the clutch off, unless specified otherwise.
Track: it's a nice track, but when when raced competitively there are no good/safe overtaking spots, which is a shame - it's basically worse than Monaco, in that respect. Hopefully they have a variant that does have one or two safe spots for overtaking, or else this will become mostly a Time Trial track.
AI: drivers behave decently most of the time. They suck at some corners though, and still aren't really great at FWD cars (I could overtake all of them in the first slow corner, and they are really slow through the next two following it also. They still rather easily crash into you, giving you the feeling that the rewind feature was very necessary to keep the game enjoyable. Initially I had my kid on my lap and when I was driving slow and the AI was coming to lap me, the first car braked but still clipped me, the next car rammed me, and all the others piled into that one.
Graphics: mostly quite good. Obviously, Photo mode shots were photomode, but at its best the game and the car models still looks really good. At its best can in this case be very clearly specified - cars that have a metallic surface and are reflecting either the environment or light look great. As soon as they go into the shadow however, the shaders are a big letdown. Non-metallic paints look like a very ugly kind of plastic (and not that awesome in the sun). On this track you drive mostly in the sun though, so it looks pretty good in general. The hood view shows very good reflections, but is sometimes amazingly low-poly. HDR implementation is somewhat limited (maybe the 10bit precision mode?), but mostly sufficient. Replays have motion blur added mostly and seem to be 30fps like the other game, not that many differences otherwise.
The cockpit view is great and I prefer it, but for some reason the framerate doesn't feel the same. It's as if the whole game runs at half the regular speed internally or something like that. It's a strange experience, but I started driving with in-cockpit view for maybe an hour, and then went to hood view with a feeling that the framerate just didn't feel right. Since I think gamesmaster measured the cockpit view already to be 60fps according to his tools, it may need a special look by a few of our specialists to determine what's really going on.
Handling: this is still clearly Forza, but the problem with the rear of the car breaking out for no good reason is gone. Elevations still seem slightly off though, and in place of the binary switch between grip/no-grip models, we now get a very grippy model altogether.
This has advantages and disadvantages. You can't spin out a car anymore at all, basically, and to drift a car you have to be pretty aggressive in a very powerful car. When you come over a hill and you are almost or even fully airborn, the brakes work much stronger and sooner than I would expect them to and there is little instability. All in all the grip feels much like Standard mode in a certain other game in these respects. This is great for most people and will make the game much more accessible, but not as hot for some others.
Sideways grip is still pretty realistic though, maybe even improved a little from Forza 2. Also, the wheel lock still happens at 50% when ABS is off - even if you can change this to 75% in the settings (haven't tried that yet), it's still a bit weird, and I'm surprised this wasn't changed - even the Prius in low-speed mode isn't that aggressive. I also think there's a small bug in the demo as when I started setting the difficulty to CUSTOM, I experimented with ABS on, and felt no difference. What I could test with the clutch (taking into account I only had the digital A button on the wheel) made it seem pretty realistic, in that you can shift fast in the higher gears, but from first to second you win time by easing off the throttle while shifting (rev-matching).
At the highest difficulty, tires heat up nicely and realistically, and this affects the handling as expected. However, when you start driving the tires feel pre-heated (which may be right, it seemed as if they started at 50C) - they're definitely not as slippery as you'd expect cold tires to be. In reality that would vary of course between the different types of cars you can select here, but I can't feel a difference in that respect even between the Mini and the Porsche. In a sense, it feels like some cars (Mini and Evo X for instance) get less grip in the second lap, but what you're really seeing is understeer caused by the front tires heating up slightly faster and getting more traction. Which brings me to note that the telemetry is still excellent, and probably even more so than last time.
It sounds like I have a lot of complaints, but actually these are my only complaints, and for the most part the different types of cars feel right, and the handling is pretty good and enjoyable. I think most people will like it. Especially a FWD car like the Mini drives quite nicely. Bit more PGR4 than it used to be, but not necessarily in a bad way.
Controls: all cars seem to have the exact same amount of power-steering, or lack thereof, when using the force feedback wheel. You really have to work to get the thing to turn. This is definitely an area where there is a lot of room for improvement. However, the basic force feedback model that is there is still pretty good compared to a lot of other racing games.
Damage: it mostly works, in that you don't want damage to happen. It affects your handling in predicatable ways, and what it affects feels pretty nice - for instance if your wheels won't steer quite the way they should, the wheel pulls to the left in a satisfying manner. I don't think I'm going to like it much in multiplayer though (small bits of damage affecting your performance basically mean you're out of the race straight away), but we'll see. Other than that it mostly makes your car look really, really ugly - for next time, I'd recommend leaving a few patches inbetween the damaged bits that still reflect light/environment when applicable - that would look much better I think.
I'm slightly disappointed that the game isn't more realistic at the higher difficulty levels, but overall this seems to be shaping up a pretty good game. I can't make a good final judgment until I've driven some racing tracks and some more cars - right now the basics for FR, RR, FF and AWD for instance seem pretty decent, but I'm suspecting that personality of the individual cars is missing a little, which is something I won't be fully able to judge until I've been able to compare a few similar cars using the same drivetrain. And I can't fully compare the handling of the game until I'm able to compare it to tracks I know from other games and/or real life (ok, the latter is only the Nurburgring, though watching races on TV also counts for a little there
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Oh yeah, and:
Sound: decent. Not earthshattering, but satisfying enough. Like a certain other game, the tire noise hasn't changed either from the previous two games.
But it didn't really have to imho, pretty good sample. Only stupid thing is that the same sample is played no matter what car lines up (the 'wheel close-up' scene).
There's a small glitch in the game where if a friend comes online or something like that, a few seconds before you get to see that on screen the game freezes for a short while.
Replay camera has a tonne of different views you can select, and you can do this while pausing the replay, allowing you to really inspect every bit of the game's (replay) graphics.
EDIT: another bit about the grip - doesn't matter if you drive on grass, just slows you down a tad. And if you only drive half on the grass, you won't spin out either even with TCS off