I played Geoff Crammond's F1 GP, on Atari ST and then part 2 on PC, using a wheel, and remember the absolute awe inspiring moment when I was driving a full race on Monaco, and in lap 20 an AI car caused a spontaneous and spectacular multi car crash, just within my view. It was absolutely terrific.
But now we are in the era of multi-player gaming. Damage can come from being touched by an opponent who is not careful, and may well result in you being the victim. There's no fun in that at all. Experienced that plenty in GTR2002, though to its redemption, with really good players everyone is really careful - but even then, you might be taken out because someone else makes a mistake. That can be a lot of fun, but not always. In the meantime, I enjoyed GTR2002 a lot more for its spectacularly difficult but convincing handling modele.
In GT4, it is already upsetting enough if you lose 5 seconds because someone touches you - may already finish you off, that, in a good competition. If my car would have had damage, the race would be over instantly. No fun, really.
Sure, in an ideal world I would have awe inspiring damage physics. It will look great, and heighten tension, and you can always turn it off when you want to race without.
All I have been saying is that I don't find it the most important part. I prioritise. On the PS2, developers had to also. GT4 prioritised handling and graphics. DTM Race Driver prioritised AI and many cars on the track, at the cost of the previous two. On the 360, PGR3 prioritised graphics over cars on track also. Personally, I prioritize online over good AI, though the latter can still be good to fill up the grid if you want to drive online with only some friends in heavy traffic.
The fact of the matter is, though, that in GT4 LAN Parties, all the good racers are completely without incident and damage isn't a factor. Those are the best races. Hence, for me, to get the top experience in a racing game, damage isn't that important. Heck, I crashed a car in real-life, and that wasn't any fun either.
It'd be a great option to have, for sure. Just not essential. Not for me. Much more important for me, is support for the new Logitech wheel with clutch and all.
Understand though that i'm big enough of a racing fan to prefer two great racing platforms over just one.