The MS wheel is 270 degrees, not 120 degree, so it's realistic enough. The FFB is not incredible, but it is alright. Why should I get a better wheel before I can say it's better? What I'm saying is that to me, it seems that the game is much more difficult and realistic with the wheel. I can get a proper feel of the car and I have to use the same type of approach I would use in a PC racing sim (such as LFS) when I use the wheel in Forza 3 which leads me to believe that the physics model is different with a wheel. I know very well how to play a game with a steering wheel and what a feeling of 'realistic physics' are. I've been playing PC racing games with steering wheel and pedals since 1998 and I have played and own majority of PC race sims out there, Live For Speed, GT Legends, rFactor, iRacing, Grand Prix Legends, Grand Prix 4, I could go on. If you want me, I'll post you a screenshot of my three 24" LCD monitor setup with Logitech G25 steering wheel playing GTR 2.
You can choose to believe me or not, what I'm saying is that as far as I can tell, the physics model or at least the assists model for Forza 3 is more realistic when using the MS wheel. I have not used the Fanatec wheel and I cannot comment on that. If Fanatec actually offered their wheel for sale through distributors than their crappy website, then I might have considered buying one.
Kaz can say a lot of things about Forza 3, but the physics are definitely there. The only things wrong with Forza 3 are the fact that the online matchmaking sucks, and that there will always be certain cars that dominate some of the classes, and the fact that Logitech wheels (G25, DFP, etc) do not work on Xbox 360.
FYI, I can drive too fast and brake too late and get great lap times in GT5 Prologue. I've played iRacing quite a bit and GT5 Prologue feels nothing like iRacing at all. Forza 3 actually does feel a bit like iRacing with the wheel, in terms of having to be super careful on the throttle and brakes, but maybe that's just the fact I was driving a BMW M3 GTR with stock setup in Forza 3. That being said, I would say neither GT5P or Forza 3 are close at all to the iRacing physics so I don't think you can make that statement.