Actually, GT4's sounds really aren't that bad. There are plenty of games out there with far worse sound. I think we get spoiled by the handful of games with better sound, so it comes along that "GT4's sound sucks", which isn't really the case.
Granted, some car sounds in GT4 are downright pathetic. I can't even drive the McMerc SLR because of it.. sounds like a frikkin' electric razor. The throaty rumble/growl that the real car has is completely missing. Granted, the car does have a noisy transmission, which is what you're hearing, but it doesn't drown out the engine in any way, especially from outside the car.
The problem, I think, is one of disc space and system resources. There are several documented cases of cars in the demo sounding FAR better than the same car in the final game. If you pick apart what you're hearing, you'll notice that each car has pretty much only two sounds. Samples at two different RPMs (low/mid), that are simply "sped up" to increase the pitch and make it sound like high RPMs. The problem is, that doesn't really work most of the time, because real cars don't simply pitch up their engine noise when they go faster. Then, add to that the fact that they've got 700 cars in the game. Some of them use the same sounds as others, so figure maybe 550-600 unique engines. Then, add on the differences in various engine and exhaust upgrades. That's a LOT of sound to fit on a DVD, yeah? I think that's why games like NFS can make better sounding engines, is because they've only got a couple dozen cars, instead of several hundred.
Luckily, the PS3 can alleviate all of this. It's got virtually unlimited storage via Blu-Ray disc (yeah, I know it's not "unlimited", but c'mon.. fifty gigs!!) They can dedicate an entire processor of the Cell to doing nothing but sound.
What I really hope, though, is that KY and PD understand that the sound in GT could be better than it is. If they listen to the way it is now and say "Yeah, it sounds alright", then we won't get any kind of improvement. If, however, they're like us, and they listen and say "Man, that bites", then they'll actually make the effort to fix it next time and we'll be golden.
What I'd like to hear, though, is ambient noise. Let's say you're driving around the 'Ring in GT4, and you stop. What do you hear? Nothing. You hear your engine idling. If you're driving an electric car, you're probably hearing little more than dead silence. That ain't right. We need to hear the wind blowing through the trees, we need to hear birds chirping, and traffic driving around the streets of Nürburg. Granted, this stuff can't be heard at speed, but it should still be there. Replays are the same way. There are plenty of times during a replay where your car is too far away to hear. And you get dead silence, even though there should be something else there.. the wind, the birds, etc.
Another thing the cars need is more noise from themselves. When you take a corner, you should hear the suspension creak a little, especially in one of the little used cars. If they have a cockpit view (which seems likely at the moment), they really need to make sure the cars sound as they should inside. Different engine sound, tire sound, squeaky suspension.. the sound of the windshield wipers slapping the glass at 150mph, things like that. As mentioned above, maybe even the sound of the car shifting.. not as in-your-face as the big *clunk-CHUNK* of NFS:U, but at least a little something as the clutch is depressed and the shifter is moved, or even just a little "click" as the driver hits the sequential shifter or paddles (depending on the car).
We know PS3 can do thousands of individual sounds at one time. Doing all of this shouldn't be beyond PD's abilities, and it certainly isn't beyond the system's abilities. Yeah, it'll take some time, but dammit... it's worth it.