Most of any physics engine is really not that complicated - inertia, weight transfer, force, mass blah blah blah. Stuff that if you get wrong, you shouldn't be designing a sim to begin with. The acceleration gravity imposes is 9.81m/s/s - that sort of thing. Note I'm not saying dreadfully simple, but rather information that is easy to understand and implement if you have the background.
The problem comes with the physics of tire modelling - how tires interact with the road, how they respond under different loads, and how they behave in a variety of different situations. Of course, that is an extremely dynamic problem, and data is not widely available or easy to obtain regarding the more intricate secrets of the subject. Tire modelling is the crux of any physics engine (well, for driving sims :razz
There are a few things that make the LFS tire modelling stand out:
1) Tire flex is modelled. Not just mathematically, but even graphically. This allows for the deformation of the tires in real time. Try experimenting with different tire pressures and note how it affects handling, and how the tires respond to different pressures.
2) The lateral slip behaviour of the tires is much more accurate. Exceeding the lateral limit of grip generally imposes an unwelcome and physically inaccurate unrecoverable slide in ISI sims. This has been discussed at length here on the forum, and generally speaking a dropoff in lateral force does not occur when moving past the peak slip angle for a given road car tire. No publically (and arguably any proprietary) available data shows as drastic of a dropoff as is present. Some data that a member dug up showed a comparably mild drop off with very high camber (-9 degrees) but this is very unusual. This is IMO the largest problem you'll encounter in those sims. To counter, LFS currently has some issues with longitudinal grip at very (very) high slip ratios. It's likely based on developer comments that this is being rectified. Many other sims behave that way though, as the myth of drop-off on lateral grip curves has been around for decades - and is only now being discovered to be false.
3) LFS has a universal physical model which means that the tire calcs are done through a set of proprietary formulae, and are the same for each vehicle. The physics engine handles the properties of each car in the game in the same way. ISI sims have separate physics "files" for vehicles which in my opinion shows that the nature of the physics engine is subpar, since numbers must be "fudged" in order to get the desired response. This was also discussed at length on the RSC forums, and here.
4) The heat modelling on the tires in LFS is also very interesting in that it allows for flatspots. Wear and temperature and done very nicely in LFS, where there tire is divided up into 48 sampling areas per tire (1 around and 3 across) - plus sidewalls and internal air temp.
All of these things allow for a much more dyanmic tire modelling system. I'm not saying it's perfect, but the local expert (who happens to be writing his own sim, and has writen others in the past) who plays all sims also agrees that the end result of the LFS tire model is the best out there at the moment, save for possibly his own and another unreleased pseudo-secret project (perhaps you've heard of Racing Legends).
There's a plethora of other reasons why LFS is my sim of choice, but I think tire modelling is the most important reason, and most related to your original question.