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Indeed, GT5 was very strange with this, infact correct me if I'm wrong but the GT5 demos at game shops just before release had better visual damage than the actual game (granted it looked weird but it was there). People were so shocked about the lack of damage in GT5 that there was a rumor you unlocked damage after reaching a certain level.
Fun times
It was the same "type" of damage, but with the intensity ramped up (making it far easier to make the car look damaged). Problem was, stuff never really broke off or became broken, it just bent, warped, and distorted. That meant you had weird putty like effects of damaged bumpers and melting headlights (which really should crack or shatter to be convincing). That may have been why damage was toned down in GT5, as it didn't take many impacts in the demos to start making cars look ridiculous).