Edit : To close some thoughts about a PS4 version. Of course the PS4 would run the current game flawlessly. But judging by the choices they made on the PS3, I'm pretty sure they will again try to push the boundaries with stuff like displaying 48 cars in race or displaying each car at LOD0 or add some fancy lighting effect to showcase the almighty PS4 power. Except even the almighty PS4 will then have a hard time maintaining such a game at 60 fps. Again.
And they should try. This will make 32 car races at night with full dynamic lighting run flawlessly.
Now as for the original question, what I think went wrong is the people in Polyphony were born Japanese.
And this has resulted in two basic issues.
One, that Kaz is a typical Japanese employee who says "Yes, boss" to everything his superiors tell him. To an extent. The intelligent, crafty ones manage to persuade their superiors that they really wanted what he wants all along. Though this is to an extent too. There was no getting around being told to make GT5 3D. He had to do it, though I would have lobbied to make that an optional install, if that would have worked properly. Maybe it wouldn't, and he really did have no choice.
Two, Japanese think in alien ways. They love Pokemon and collectibles. They're infatuated with quirky ideas that westerners might never think of. So Japanese games, like their RPGs, have an appeal that western games don't. And GT5 has "Japanese game" written all over it. Now unfortunately, those kinds of elements just don't work well in a racing game. Collecting cars is one thing, but collecting helmets and horns?? Then there's the matter of the Museum Cards, which is a nice idea and all, but it unexpectedly clogged up the hard drive and there is no way to get rid of them. Even the curio-happy Japanese didn't seem wowed by this. And then there was the matter of the wretched XP system many of us despised (me), the Paint Shop with no paint of its own, Race Mod on all of 17 cars with a pretty lame livery in which you could paint all of ONE surface, a whole host of other things I can't remember, and... well, yuck to it all.
GT6 is in a very unusual predicament. Released just weeks after the hotly anticipated PS4, it's a last gen game trying to be relevant in a next gen market. To journalists and fans, it's still an amazing game, but to others it seems like warmed up leftovers. In the rush to be delivered before holiday sales were passed, it was released on schedule for the first time EVER, but with a lot of features yet to be implemented. And worse, SONY released it without fanfare (edit: yes, there was a huge party at Ronda, but again, pretty much covered online) and no real advertising, relying on net banners and magazine ads along with word of mouth.
But let's make it even worse. Rumor has it that SONY changed its collective mind when GT6 sales failed to explode, and the other racers like Drive Club and Project CARS were delayed. The result being that Kaz was given the green light - or ordered - to make GT7 for PS4 after all. ASAP. Wow.
And so, it's possible that work on GT6 is being sacrificed in order to do as ordered, and make that GT7 they probably wanted to start with.
So SONY has created a lovely mess and left a lot of fans feeling betrayed, and leaving Kaz and the team to take the blame for it all. This is both a blessing and a curse for being the first party studio for a megacorp as strange as SONY. You can rely on all kinds of funding, but they have all the understanding and compassion of a mob boss. And with all the market savvy of a company forcing odd proprietary formats on their customers like Memory Sticks, when USB drives and micro SD cards are well established and cheap as chips.
Some things like the lack of damage are entirely PD's fault. I'm hoping that GT7 is that wonder GT we've all been waiting for, and I'm intending to work on a post detailing what I want GT7 to be, and how that would turn things around in a huge way.