Damage is unlocked at lvl 20 iirc, yes the standard cars look ugly when your looking close up but when driving I don't really notice the difference , I would rate it at 8.5/10, using a G25 it feels great, although some of the cars handle terrible.
The only thing that really annoys me is that you cant change the rims on the standard cars (I know that we couldn't anyway) apart from that I cant really say anything else as I haven't played it much, but as far as sounds go my S2000 sounds incredible outside, inside it just sounds like a normal car :P and the graphics imo are the same as prologue maybe abit better