GT5
- more cars
- better visuals
- better photomode
- better physics
- better damage
- better tuning
- more cars on track
- different weather conditions
- racing at night (maybe even a day/night)
Forza 3
- better sound
- better online (GT5 will have online, but there is not much to talk about right now)
- better visual tuning (GT is confirmed to have it aswell, but to wich extend is unknown)
So everything thats important for a racing game is going to be superior in GT5. Physics is more or less a matter of opinion.
I know the damage is something that T10 is doing for many years now, but i guess Polyphony Digital will deliver. The latest news provided by "frank-jaeger" in the damage thread shows that they are really working on some ultra realistic damage system. The level of damage will be adjustable, but on the highest setting one single crash can total your car.
http://gameinformer.com/games/gran_turismo_5/b/ps3/archive/2009/09/30/preview.aspx