We used to mod the GM turbohydramatics with manual valve bodies in the 90's and turn them into real manumatics. They weren't really faster (less than a tenth). You don't address the lack of gears or the torque converter loss that way.
True, but automatics do have an advantage in drag racing due to a smooth power delivery at launch, quicker shifting (if you increase the pressure enough), and never missing a shift (unless your transmission is on it's way out). Where they lose their advantage is what you said, torque converter power loss and a lack of gears compared to the manual transmission available in the same car.
For instance, my car completely stock came in either a 4-speed automatic or a 6-speed manual. In a drag race, the automatic would usually pull a small lead within the first 60', and the manual would then have to reel it in. Due to slightly shorter gearing and being able to put more power to the ground, a
well-driven (key point) manual would beat the automatic 9 times out of 10, but not by much. However, once you start adding power and speed, you overcome the power loss of an automatic and shift speed, launching, and consistency are much more important, so you want an automatic.
That said, GT5 has no drag racing mode, and from a rolling start (as you'd have when exiting a corner onto a straightaway on a race track) a manual is better due to better gearing. This is of course comparing two cars making equal power, and comparing a 6-speed manual to a torque-converter automatic. The gap can be lessened or removed with a semi-manual or dual-clutch automatic gearbox, especially if it has 6 or more gears.
As has been said, GT5 really doesn't simulate automatic transmissions at all, so the only applicable argument you can make for manuals is that you can choose your own shift points, and therefore manuals are better in the game.
