Ajerman: I believe damage is confirmed for the full GT5 release, but not for GT5: Prologue. Still, there is more to realism than just damage physics. In fact, if you REALLY wanted realistic damage, one mistake and crash into the wall is likely to end your race. Honestly, I am not sure whether I WANT such realistic damage (or at least I hope GT5 gives me an option to control the effects of damage).
Firstclass: I see your point in comparing Forza2 to GT5: Prologue, but your comparison is even worse! Comparing GT4, a last generation racing game released on the PS2 years ago with Forza2 a next generation racing game released for the 360 a year ago? No wai.
I like Forza2. But like I said, the Forza series is a relative newcomer when you compare it to the pedigree Polyphony Digital has built with the Gran Turismo series. I can't wait to play GT5: Prologue for myself on April 15, but based on that video I linked (and tons of others) the game is looking to be amazingly realistic (except for the lack of damage of course, whch admittedly sucks).