OK, here's my two cents after putting in 6 hours last night (XB360-Controller) . . .
If you're a race fan/fanatic, and thereby completely disappointed with the A-Spec racing in GT5, you must at least rent Shift 2 and give it a run.
Physics- Keep in mind I am running the 360 version with a controller (only button assignment changes, no assist (elite) and AI on HARD.) Some cars in their stock form (read BMW 135i) are a bit "floaty" but less so than ANY of the cars in Shift 1. I upgraded my 135i before hitting the track, and a buddy took his out stock. Then I switched the lobby to "indentical" (more on that later) and he drove mine. He reported a world of difference with my mildly upgraded car. My car had a body kit, mild engine upgrade, brake kit (499PI- from 400PI.) That said, the floaty feeling appears to be present only in select models, and then only in stock form (I took out the Lambo Cop Car (awarded for having a Hot Pursuit game save) and there was absolutely no float.) From the controller to the road, the game demands timely braking (but seemingly less than GT5) and smooth transitions. I'd challenge anyone who said Shift 2 has more built in understeer than GT5 or FM3. The game's tire feedback isn't as fine as GT5, but it is a world better than Shift 1. The grip model feels solid (mind you, I haven't driven a GT3/GT1 car yet) unlike Shift 1, this game does not do the rear slide on every corner. And when you do push the rear out, revs drop and you lose time. Those folks reporting that it's the same as Shift 1 are likely being fooled by the helmet cam, which gives you the sense the rear is coming around on every corner (IT IS NOT.) Where I think the physics shines is in its weight transfer modelling and presentation. Hoods dive under braking, and grip appropriately moves from corner to corner and side to side in transitions. Sure FM3 and GT5 also model this, but Shift 2 does it faster. Call it arcade if you want, it reminded me of both Race Pro and Toca- and to me that is a good thing. To me, GT5 and FM3 feel numb compared to Shift 2.
Graphics- I really only raced from the helmet cam, so keep that in mind. It does appear that Shift 2 sacrifices some amount of resolution in order to provide a much larger number of moving objects on screen. Tires kick up sod, marbles collect offline, virtually every part of a car can be damaged and therby altered, and there are a fair amount of off track animations. Car modelling is solid, but compared to GT5 you can tell trade offs were made. Given the number of moving elements I'd say SHift 2 deserves above average marks. IMO the dusk and night driving are graphically superior to GT5- yep I said it.
Racing- To start, the career is acceptably deep. Probably double that of GT5 (I didn't actually count the races.) Regardless, the replay value is very high. Because of the active and dynamic AI, you'll definately return to events you already won to battle with a different car. For many of us, the same thing cannot be said for GT5. Folks, with the AI set to HARD, if you have a significant moment (an off, or heavy shunt, or a hard tank slapper) you likely just cost yourself first place if not a podium finish. The best part, you'll be happy to give it another go. If there is a fault with the AI, it would be that they have no issue with hitting you if you're not up to speed in the racing line, and they are a bit over active when racing each other.
Online lobbies support 12 cars/players, and you can drop in AI drivers (nice.) While I couldn't find a way to assign different cars for the AI (the game will select cars based on lobby restrictions), I did find that you can limit the lobby to a single model race (choose "identical" under model restriction.) The bonus here is that the host chooses a car from their garage, and every driver gets that car WITH it's upgrades even if they don't have that model in their garage (no can do in FM3, and BIG no can do in GT5.) The lobby even selects different liveries/paint jobs for each car- nice touch.
I haven't played with tuning yet, as I really wanted to get a feel for the physics out of the box, I suspect the default tunes are passable, and yet still improvable (to make tuning worthwhile.) Just briefly, I played with the custom livery editor and it's poop- cumbersome. I ran around 15 different tracks, all pretty well modelled, and all generally adorned with too much off the track animation (IMO.) The interface is passable, fonts are a bit rough, menu layout is nothing remarkable, but it's easy to get around and navigate. The nicest bit is being able to link between different menus (autolog for instance) directly to a race page- where you can then change your car and drop right in- well done. If you race with friends, Autolog will provide you hours of replay chasing down others times.
In racing/rock and roll terms, Shift 2 is Van Halen w/ DLR rocking "Panama" with the volume at 11, compared with GT5's Simon & Garfunkel "I am a rock" accoustic in Central Park.