I base my exp on Forza 2.
I used the controller for first while, liked it heaps and decided to get the MS wheel.
After about 5hr learning curve (first 2hrs, i felt like i had wasted my money, as i was struggling big time), the wheel was great, and i was able to match and slightly better my controller lap times.
The biggest improvements were the ability to ease on the throttle better, a must for high power cars.
And also that i could hold an exact amount of lock, rather than tapping the stick to get similar results.
These advantages made for smoother driving and faster laps.
I tried to use the wheel for a non-sim racing game (NFS carbon), it is impossible to play this game with the wheel, as full lock to full lock is how you play the game.
My conclusion is that a wheel can be advantageous for simulation games, and hopeless for non simulation games.