The only thing I have any input on is engine braking, I noticed it's not very strong on alot of the cars. however, there are variables at play that would determine how strong the engine braking is.
I don't know all of these variables, so I don't know how strong the engine braking should be.
Engine braking comes from one main force, vacuum. Some people say its compression but thats because the term compression braking is misleading. Compression braking is actualy quite the opposite, it should be called vacuum braking.
Compression acts as a spring and will NOT slow down a car, thats why diesel engines are fitted with special equipment, they can not engine brake on thier own. A diesel engine requires a compression release brake because the compression will spring back and return most of the energy it took, not to mention the fact that the engine is still running and defeating compression anyway.
Compression, or De-compression braking is the effect of manifold vacuum on the speed of an engine. When the throttle closses and the engine is at a high RPM the speed of the engine is going to instantly want to return to idle, the engine basicaly becomes a pump, it has to suck as much air through the idle port on the throttle plate as it can. Since the idle port is only big enough to allow enough air through for the engine to idle it will build up alot of vacuum in the intake. This vacuum will act on the piston faces as the engine turns, slowing it down very quickly.
Now there is one majour factor that plays a big roll in the actual braking force generated by the vacuum, piston shape. This is the variable that I don't know in LFS.
The braking force will not always go up when displacement does, but the Bore:Stroke ratio will always effect braking.
Take a 1L engine as an example, the same displacement with larger pistons and a shorter stroke will generate more engine braking than an engine with a longer stroke and smaller pistons, even though they are the same displacement. This is because the vacuum has more surface area to act on. Engine braking happens on the Intake stroke, not the compression stroke.
As it stands I don't know how in depth the engine simulation in LFS is, its possible engine braking is just a variable and currently has nothing to do with physics, if this is so, I think the engine simulation needs some work.