While it appears car damage is finally on its way to the Gran Turismo series when GT5 is released, don't expect the same attention to detail from the PSP version of the game.
Answering fan questions on the official PlayStation blog, Polyphony's Chris Hinojosa Miranda and Taku Imasaki have said in response to a fan asking whether car damage would be included in the PSP game:
Damage? No. 800+ cars, 35 tracks, on-the-go awesomeness, and a lifetime's worth of racing, yes.
Shame, but there you have it. Those waiting for a touch more realism from their racing will have to wait for the next PS3 game.
UPDATE - On the subject, there'll be no damage introduced into GT5 Prologue, either. You'll have to wait for the final game for that.
Gran Turismo PSP - Your Questions Answered [PlayStation]