I feel the pain with this subject.
Everything else in GT4 was pretty fun and easy, the hard rallies were just annoying.
The AI can't drive well and the penalties rob you of wins with nearly every attempt.
My suggestion to you...
Learn that hitting your car's rear-end against something will avoid giving you a penalty the way hitting your front or side will.
Also, try to make sure you
don't run with fully modified cars.
I found that running with fully modified rally cars will just reduce your grip because the power makes you sit and spin rather than grip and go.
Using less hp may actually make you faster than using more.
Another thing to remember is to keep your cool and use your brakes... Try running the race with a level head and
instead of racing to win, try racing to keep up just so you can judge what needs to be done to win.
Do a few races where you keep it slow enough to stay clean and in controll.
After a bit of that you may be able to keep up with the AI.
Pushing too hard in races like the hard rallies will just lead to penalties.
Race with a level head and eventually everything will fall into place (even if it takes a bit of time before that happens).
Also, be patient, you're going to have GT4 for a long time.
If you're stuck on the rally, go do some other stuff and build up your skills a bit more, then come back and attack the rally. 👍
License tests are a good place to work on that (although the rally tests are hard as hell for me).
The Weekly Race Series is a good place to sharpen your skills as well, although I woudn't go there if you can't handle working hard just to come in mid-pack... The WRS is mega-fast.
But the WRS is one of the best features of the GTP as well. It offers great atmosphere, great friends, great racing, and great experience. Racing in the WRS for 6 months will make you a faster racer than you have ever been before I garuntee it. 👍