This fits into the "professional mode" thing that i've been thinking up. It's a mode for experienced car people to get technical with their car modifications. Really focused stuff, ya know? Like designing your own suspension layout or, like you said, making your own engines. It should include simulations of wheels weight, unsprung weight, drag coefficients, all sorts of technical stuff that not everybody understands. It would have to be a seperate mode, though, or else the game would become too complicated for 90% of its players. They most likely wouldn't have to make another professional game because they'll have 50 gigs to work with on a disc.
Back on topic, I think your idea is great, though it should include tutorials and teach you about the parts and show you how to design them, what orks, what doesn't. Maybe it could have a bunch of preset stuff and you could start from there and modify the settings. You know, start with a standard engine, bore or stroke it, put in sleeves to decreasse the displacement (for forced induction durability reasons), lower or raise compression, that sort of stuff. But most tolerances on modern engines are already about as close as you can get. You could change the measurements of the engine, but things like ring clearance ar about as close as you can get. I think watching a virtual hand measure, grind, and place the buckets of your OHC motor on the engine is a little too inticate, though. I would go for things like swapping out a carbuerator for EFI would be neat. Or changing a wet sump oil syatem to dry sump for racing purposes.
Overall, I like your idea. But Don't get too technical, you might be spending as much time designing as the engineers do!
