So I dug out my Xbox360.
After some PITA trouble with HDMI not being seen with my 4k Vizio and the DVD player not seeing that a game disc is installed, I finally did a bunch of back to back switching between FM3 and FM7.
Using the gamepad the whole time with each, I hot lapped the 944 Turbo on Maple's and Suzuka's shortest track a bunch.
Right away I noticed the visual shaking, leaning, bumping and tipping is very minimal in FM3.
The steering wheel reflection is also obviously missing in FM3, which I didn’t mind, as I think the FM7 steering wheel reflection is way too pronounced and annoying.
Driving in FM3 is really good EXCEPT that the steering is very sensitive on turn in; so much so that I was swerving like a drunk early on. It's like I was jerking the steering wheel 10° each time when I wasn't. After a few laps, VERY carefully with extremely small thumbstick movements I could arc in the turns but it was difficult and inconsistent to do.
None of this initial steering over-sensitivity exists in FM7. FM7 steers predictably and way more linear to which way the wheels are pointed. Much better steering representation in FM7.
Amazingly, the actual handling, grip and reaction to understeer/oversteer seemed relatively similar in both games. However, due to the greatly enhanced visual effects, FM7 felt more real with much more immersive feedback.
Sounds in FM7 are better, also with many more of them; tire chirps (like when the tires regain traction, not just squealing from sliding), gearbox noises a plenty and greatly varied engine sounds were most noticeably additions.
Lastly, the only thing I miss from FM3 are some nice car and track choices. <sniff> No 959, no Saabs, missing 70's 80's 90's cars and no DeLorean.
So overall, yeah, rose colored glassed are indeed the case.