More on the dodgy latest XBOX live update, thanks to snowowl.
"After lengthy conversations I had on Thursday (June 14) with Xbox Support, it is apparent the "current" System Update Version 2.0.15572.0 is what is messing up the behavior of the wheels, whether the Microsoft Wireless Wheel, the Fanatec products (version does not matter) or even the Microsoft Wireless Speed Wheel. Not all regions have received the update, and it may being withheld now pending investigation of the issues.
Turn 10 has already contacted Xbox LIVE's support techs, and the suggestion in the conversations I had Thursday with the support personnel was:
IF you are running Update Version 2.0.15572.0, you can attempt to clear the cache (described here:
http://support.xbox.com/en-US/xbox-360/settings-and-initial-setup/clear-system-cache) to remove that build so you can play Forza Motorsport (or any other racing game on the console for which you use a steering wheel) in an offline mode without receiving the Version 2.0.15572.0 Xbox update. If you are in a region where the new Update Version has already been delivered, it may be offered again. Refusal of that update will not allow online usage.
NOTE: In attempting this in various testing, some people were able to successfully remove the update, while others were not - even after numerous attempts and numerous restarts of the console after performing the Cache Maintenance. Reverting to the previous Dashboard 2.0.14719.0 build, or having it currently properly installed, apparently does continue the proper usage of the wheels, including correct Force Feedback avoids the anomalies presented with the new Xbox update.
The first regionalized update from Xbox LIVE, which only pertained to background (server side) functions, is in preparation for the new Dashboard Update which is supposed to be released June 20. None of the work done in the current update brings any changes to any games, including Forza Motorsport 4, directly. There are no title updates included, even though what the background work apparently has done has had unexpected results.
Beyond this information, I have nothing more at this point. It is not Turn 10's issue to fix, it doesn't affect all Forza Motorsport 4 players, and work is being done to figure out what changes caused the issues with the wheels. Please NOTE: This is NOT an official statement from any of the parties involved, only information from investigation I did."
http://forums.forzamotorsport.net/forums/permalink/5494946/5502855/ShowThread.aspx#5502855