Blur uses real cars in real cities, however it uses power ups like mario kart and not weapons. It's pretty recent too. If it's not that I really have no idea what it could be. Here's a list of car combat games you could look through. Maybe it's there somewhere.
Project CARS will not be free to play. The builds people have been playing are from funding the game early. You can't currently buy the game, but I wouldn't be surprised if they did another sort of early access once it hits beta.
I haven't got a chance to play Assetto yet, but I've heard very good things.
Other than that, check out rFactor and Game Stock Car 2013. rFactor is pretty old, but has a large modding community so there is plenty of things to try out. Game Stock Car was just released and is one of the best sims out there, though most people that aren't actively following racing sims probably haven't heard of it.
Also check out SimBim's games. Thesetwo bundles include GT Legends, the original GTR and Race Injection, which is Race 07 with a bunch of expansions.
iRacing is also worth mentioning. Though it is multiplayer only and can be expensive.
@pl4yer_f0und: I use a G27. It's a bit pricey, but it's definitely worth it if you are into racing sims. I've heard good things about the Driving Force GT if you are looking for something cheaper.
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