OK, 15-minute quickie impressions from me:
The graphics make my eyes hurt. The lighting is flat, the cars don't look very accurate, and the backgrounds just look like something from a PS2 game. The only savior is the 60fps and the detail to things (like glowing brakes). Everything else in general looks poor. A one and a half year old launch game (PGR3) puts this to shame. I know I'm spoiled by GTHD and its photorealistic car models, but still. Forza 2 should look better than what we're seeing after all the delays.
The car selection is definitely very generous for a demo. And with about 300 cars in the final release, there's no room for griping.
AI? I don't think it's perfect, but it's good. They're competitive, and when I try to pass on the inside line, they don't clobber you into the sand. I played a game of chicken with it just for fun, and whenever I looked like I was going to wreck into them, they moved away. Of course, the AI has its quirks, but it's good for what it is.
With the damage, at this point, it's disappointing. But we're probably using a lower level of "realisticness", so I'm not commenting on this any further.
The physics seem pretty good. Like Dave said, I didn't care for the sliding... but turning off the driving aids makes anyone be careful. You go gung-ho into a corner, and you'll end up in the wall. Try and slam on the gas at the beginning of a race, and you'll lose control. Ram into an opponent, and you'll find yourself in the kitty litter.
Now, we haven't seen the stuff that are the big selling points (online community and customization), so I'm not writing this off. Will I buy it on the day it comes out? Definitely. Will it be in the top 5 games for me this year? No. Overall, the game seems like a good game to hold us off for GT5, but it's definitely not going to take the crown.