Everyone seems to be confusing "AI" and "difficulty". They are not the same thing and they don't really even go hand in hand. You can have rubbish AI and still be very difficult - a prime example being the Pro Vitz / Yaris race in GT3: the CPU cars blindly follow the racing line, nose to tail and never deviate from this, but they're still nearly impossible to beat because they do it at very high speed.
Decent AI should make you think you are racing against humans, not CPU controlled cars. They should react to what is going on around them, try different things at different points of the race, occasionally make mistakes... all the things you would expect a human to do. As it is, the CPU drivers follow the racing line and perform seemingly pre-set actions at pre-set points - the only differences being how quickly they do it depending on how difficult PD want the race to be. I would like to see the CPU cars early on driving badly, not just slowly and later on they should drive well, not just quickly, and preferably actually battle for position...