Ok, the engine damage is fairly accurate, I tried this out myself and the cars which incurred little to no damage rather than just over cooking the engine actually lost grip with the road. The reason being the engine had the power/weight to overcome the friction coefficient between the tyre and the road. The fact that these are RWD cars merely adds to the effect as the weight is transferred to the front wheels as it slows. The UF1, FXO and XFG which seem to take the most damage are relatively low power to weight ratio vehicles and are FWD, meaning the tyres not only grip the road far more than the stopping power of the engine, but as the car slows down the grip factor increases.
A couple of factors I would like to see make it into LFS (although possibly not for a while) is clutch wear, especially on the heavier engined cars, and coolant overheating.