It depends what you're looking for.
Please note that I don't use a wheel with my consoles so my opinion only counts on stock equipment.
In terms of complete race customisability and a 99% immersive driving experience, LFS is still king. The only other game I've played which matches it in terms of believability is RBR.
In terms of racing, both Forza and GT have their merits. The rubber-banding in GT5 means you're always in the competition, even if you suck. You might never win, but you'll be among other cars. GT5 replicates the LFS feeling of "driving on glass" better than Forza does - whether that's realistic or not I couldn't say since I've never driven these cars IRL.
The AI in Forza 3 means the field is pretty believable on the harder difficulty, and the new "pressure" system means that they do make mistakes. In fact, this morning I watched a brilliant race event happen in front of me as one AI car ran wide and skidded into another car, then they both fought side by side for the leading spot into the next corner. Really interesting to watch, and much more immersive than flawless driving on a perfect line.
When it comes to customising, Forza 3 takes the cake. LFS is good because you can Photoshop your skins, but the decal editor is a pretty worthy alternative. And there are so many options for parts upgrades that finding the right combination for your driving style is easy. Or let the game do it for you with the quick option.
Graphics have been argued to death. I think the in-game graphics between FM3 and GT5(full) are pretty even, tilted slightly in favour of GT5 due to the PS3's better graphics chip.
It's not a great idea to buy an entire platform for just one game though. Investigate the others you'd be interested in and then make a decision.