The 360's limit to Dolby Digital
Ah, that's not really much of a handicap in light of the other issues displayed by both games.
While a certain degree of artistic direction is certainly in place within FM4 its much less than it was in previous titles in the series, and for me gets far closer to the sound I've experienced from a range of cars in reality.
I disagree; listen to FM2, for a start. The sounds are cleaner and better represent the cars in question, plus there were two sound sources per car (exhaust and engine / intake, like GT5) and the exhaust sounds changed more markedly on more cars when modified. Sure, there were fewer cars overall in FM2, I understand; they still removed something positive that they could have built on, for unfathomable reasons (sound familiar?)
Then came FM3 with its heavy, unnatural distortion, sounds were dropped down to a single source per car, and did not change when modified (except engine / aspiration swaps). Then there was much glee in describing how they'd licensed a Hollywood inner-ear distortion effect for FM4, which they seem to have just pre-applied to the samples, rather than varyingly distorting the sound when it would actually do so should you be physically stood there. Note that the distortion does not fade as the car gets further away. Your inner-ear does not accompany the car down the track. At least now it does sort of sound like my ears saturating, rather than a microphone or what have you.
No problem I'm quite happy with what you were referring to in regard to audio compression, home cinema has been a passion of mine for decades.
In the case of this specific video its certainly not representative of the actual sound.
That's what I suspected, and is why I mentioned it. I did bear it in mind, and tried to listen through it.
Depends on the title but certainly its more than possible and one of the main problems I have with audio in GT5 is that they at last had the tools to impress with the audio and dropped the ball on it once again.
Scaff
The output formats are largely irrelevant in the context of the glaring issues in both games (except GT5's stereo mix, which is naff). The PS3 is seriously lacking in comparison to the X360 in terms of memory; the more memory you have, the more and / or bigger samples you can squeeze into it. Forza uses (by my ears) at least three samples in the rev range (excluding idle), helped by only having one source per car (although FM2 managed); GT only has two, for two sources per car. So, oddly, it looks like GT uses more samples per car, but they must have to compromise on sample quality (data compression, use the SPEs to decode on the fly) and on sample length (less detail and nuance, sometimes more audible looping artefacts) in order to meet the memory budget.
It doesn't help that, in GT5, they're not very "good" samples, either, in most cases (except most road car exhausts.) That's a historic recording issue for PD, sadly, and one which I've rambled on about at length before, but it means they are at a further disadvantage, in terms of actual "tools" / raw materials.
Comparisons aside, I still feel Forza 4's sound is seriously missing out on its true potential. They have excellent recordings, but they make odd design decisions and butcher the samples before they're even loaded into memory, and then again when being played back (low-res control). It all just sounds a bit too NFS Shift-y, when the gold standard, for my ears, is PGR4 (whose sound team T10 / MS have "poached" - to no real apparent benefit.)