Yes, but neither the throttle, brake or steering is "instant" in LFS. The button rate setting makes throttle and brake applications smoother, and there is a wonderful variety of settings for the steering.
As for setups, you'll just want to maket the car very stable, I'd imagine. I haven't played with kb on S2 (well, other than a 2 min test), it's a lot more stable than it was (post patch F anyway).
jdm22, have you tried my "easy race" setups? They'd probably be a start. And, do try driving with mouse. It took me about a week to get used to it when I switched and it means you can drive all the cars with modest power outputs almost as well as wheel users.