I also think they work the way they should, at least in the way the vehicles behave. I've driven a street/strip Camaro once, had a fully locked rear differential. When you were driving down the road normally, you didnt even notice. The only time it became evident was when you were going VERY slow around a tight turn- ie. 15 mph in a parking lot. Then, and only then would the back end 'hop' a bit and there was obvious drivetrain strain going on. For FWD, I dunno, I've never driven one with a locked diff. But in LFS, locked diffs in FWD cars usually understeer badly and will only turn once you get back on the power, and there is that "heavyness" felt in the Force Feedback, which feels right to me. The only issue is that in real life, I'm sure a FWD car with a locked diff would eat up driveshafts unless they were specially made, heavy duty units.
With Radio Controlled cars, I have locked up the front differential on my Xmod and use a very loose rear differential, as I noticed with the rear locked, the car would become very loose during cornering. We did race on a very slick surface though, and the track did not have any tight turns so this could be random behaviour compared to what everyone else is getting.
And Nascar- I had the oppurtunity to ask one of Dale Earnheardt's crew guys some questions several years ago when they had one of his cars on display at my college- and I asked about differentials. He said that on most long ovals, they used a "detroit locker" style diff, where it was locked under power but open during coasting, and on shorter ovals (a mile or less) and road courses they used a clutch-style lsd, as on short ovals, inner-rear tire wear was a concern. But that was nearly 10 years ago so the rules could have changed.
So what does all that mean for LFS? Who knows.
I'd personally like to see mechanical failures implemented- as one person said, most road cars arent made to race and therefore have differentials to aid in longevity and drivability of the cars, some racing cars do it for the same reason, as many race teams in all sorts of different motorsports dont have the budget to replace a $1500 rear axle every week.
Brendan