The livery editor is restricted to vector shapes with a position, size, rotation, skew, transparency, colour, and a few other properties. I believe they are stored as an xml or something like that. Basically, you download the files that contain all the vinyl position, and your xbox recreates the livery.
There are several theories as to why things are done this way, and they're all pretty sound.
1) You stop people transferring textures to each other. You get a small, easily-checksummed xml document, that you can be pretty sure isn't going to contain any malicious code. Your xbox then recreates the livery. This makes security-conscious MS happy.
2) You create a real economy where it takes genuine skill to create a good paint job.
3) As Tenacious said, it allows editing of the vinyls at any time.
4) It also enables their new storefront option to sell vinyl groups as small pictures, eg individual logos etc.
5) The moment you move away from preset shapes, you have to start creating photoshop-style tools. And that takes a lot of time and effort.
The important thing to remember here is security and integrity of Xbox Live. If I slap a 2mb file on my car, who wants to wait until I upload 2mb to everyone else on the server? What if I import a copyrighted image?
GT may end up more photoshop-ish, with mouse support etc. I'd be interested to see how they implement it. Shift a simple livery editor, but it followed the Forza paradigm of positioned preset shapes. Either way, painting a car in Forza is still fun and rewarding, lots of people spend more time painting than they do racing. Try it before you slam it hey? The fact that you looked at those paint jobs and thought they were imported or created with photoshop tools just shows how powerful and versatile the livery editor is in the right hands. It's not as hard as it looks.
1-)Security is far from an issue. I find it hard to believe anyone could embed malicious code into a texture. And even if they do, the game would still read it as a texture with the only consequence being some weird looking textures.
2-)Genuine skill would still come up with mind-blowing liveries. The only difference is that the ok guys could still have fun.
3-)As long as you keep your livery organized, you still will be able to edit it without any problems.
4-)More ways to rip off your money. Unless you mean in-game cash.
5-)Indeed that would be more complicated to do, but hey, if you want a great livery editor you need to put effort into it.
Your claim about size actually is the one that makes more sense to me. Could really be a problem to download 7 different textures. I don't actually know a full-car-texture size, can be 100k, 2mb, 5mb, I don't really know. It's not really dependent on the file you use since it will be converted in the game. I think there are some clever ways around the size problem but it can be a problem right there.
Like others pointed out, there is the porn problem. However, Forza's is still prone to the porn problem. If people can create such a realistic looking woman, I doubt they can't create realistic woman body parts... But yeah it would be a lot harder to keep track since a kid just need to import an image instead of spending hours to make it look real. However, just like with image importing, you still need the moderation since I believe the non-realistic porn is also a problem.
Copyright is probably the biggest problem. However, you have some questionable ways to overcome it, like the "it's not my fault, it's the guy's who copied it" approach. For example, in any forum, people can upload any image, copyrighted or not. As long as you tell people they shouldn't do that and have someone remove the image, you should be fine.
Anyway, now I do see why not having a image import option. It has a lot of bad consequences. Still, it would help a lot and I believe it should be worked on to be made possible. Forza's approach appear to work fine for a simple race car livery, but if you want to go beyond, or try something more complex, you're in for a lot of work.
And I mean a lot. That's my main problem with it. It's like trying to do a photo realistic livery in a slightly improved MS paint. There are a lot easier ways to do the same thing.