How is that any different to real racing? If you could magically adjust the performance of someone in a real race, all you'd be doing is adjusting the time they finish. All racing is pretty much a "glorified time trial" if you break it down the simple fact of you need to beat the other cars over the line as they finish at X time.
By setting a difficulty you're dictating their average pace, that they should float around. Once you find your own pace, you set the AI to match and hey presto, you have a good race with them because they're racing at the same pace as you, +/- a small variation because you don't want it doing the exact same time lap after lap. There is no illusion.
Other games usually also have an agression slider, so you can adjust how hard they race you, as well as their pure pace.