I'm not going to debate whether it's more realistic than GT5 or not. I'm not a console player and I had only a limited (but overall positive) exposure to it.
From my point of view it's not even an issue worth discussing.
The PS3 version of S2U is probably the worse version of the game (platform wise) and you have zero modding ability.
And comparing PC version to GT5 is not exactly apples to apples anymore and doesn't appeal to the same category of users either.
Shift2 - PC version
I liked this game from the very beginning and after applying mods to it (UCP, tire mods in particular) I started to love it and still do very much.
But personal feelings aside I'll try to be a bit (brutally) honest about it.
In terms of handling and force feedback effects it is still a far cry from actual realism or simulation standards, even with UCP and lots of advanced tuning on the cars.
Only way to approach realism in Shift2 is with one of the tire mods - NTM or PTMu.
These 2 bring the physics of the game to a new dimension and closer to the big boys (Project CARS, rFactor, iRacing, SimBin stuff, etc). Without them realism and Shift2 do not mix very well.
As Iain Bell stated far too many "sims" miss the mark of real life racing by a mile. Racing Drivers who test complain of a lack of grip and floaty feel to most sims and while the stock and patched versions of S2 are a little lacking, the UCP really fixed 98% of those issues.
I'm sorry to say but that exactly the feeling you get coming back to Shift2 from Project CARS for example (which is Ian's brain child)
Floating sensations and disconnection from what the cars and tires are actually doing are very prominent.
Lots of aids inside the game, even after
turning them OFF.
Brakes , to give you an example, still have a lot of ABS-like behavior.
Tire lock-up occurs very late (if at all) and it's more on the subtle side of things when it does. Threshold braking is not really possible because of that, a technique many racing drivers (and sim-racers) depend on a lot.
Some form of traction control also seems to linger a lot in the physics.
You get no trailing throttle oversteer or trail braking oversteer, making cornering way too easy and arcade style.
And the list can go on and on ...
As I said tire mods will improve physics and alleviate some of the above mentioned aspects. But they're not miracle workers.
Still, the game has a huge fun factor and many qualities to it.
I love it and will continue to do, just not particularly for its realism.