1) Is the damage better than the 2nd DiRT?
It's difficult to compare. What, exactly, are you looking for? Something more realistic? Something more forgiving?
2) Music? Custom soundtracks?
The soundtrack itself is fantastic. Custom soundtracks, however, are not possible.
His car - the #199 Subaru Impreza - is in it. He, however, is not.
Yes.
5) Do people wreck online?
They do in Landrush and Rallycross, but if you drive smartly, you can avoid the carnage. But that's part of the challenge. And if you've been playing for a while and know the stages, you can catch up very quickly (ie there's a watersplash on Portage Canal/County Loop which can seriously slow you down, but if you go to one side, you can go around the watersplash whilst still remainign in the bounds of the track). All other modes use ghosts, so wrecking is impossible. If you host a Landrush or Rallycross event, you can change the settings so that it uses ghosts, too.
As for some of the other game modes - particularly Transporter, Outbreak and Cat 'n' Mouse - crashing into other people is the entire point of the game.
How do you judge what makes a game "worth buying"? I, for one, love it and think it's a great game. That doesn't guarantee you'll feel the same way.
7)Is it more realistic? Better physics?
Is it realistic? No. It's not a hardcore simulator. It's more of an arcadde game with simulator physics.
On what?