The AI in GT4 will sometimes notice and avoid you, but you have to be going pretty steady, like on test course. Make a turn or change your speed, however, they will run right into you. This makes me think that the AI is aware, but only inside a tiny radius around their cars, and at speed they can't react to you, so they do they next best thing (for them): bulldoze through you.
Or I could be completely wrong, and I'm only imagining the (few) times they've dodged me is not just their programmed route. Just a theory.