Hi
Like you I played Forza 2 (and all other racing games aside from a couple of PS1 and PC games) with a gamepad. I'd tried a wheel with PS1 (hopeless) and PC (mounted to desk and better but awkward seating position).
Anyway, as I like to think of myself a an "enthusiastic" driver (as I explained to to the constable with the speed gun), I got myself an MS wheel for £60 from Gamesatation (told them it was that price in Game, they never checked

).
So with Forza 3 demo downloaded I wired it up, and was pretty disappointed - sure it felt more like actual driving, but to be honest I struggled on "easy" when I could win comfortably on "hard" with the gamepad (though in fairness I was using manual gears with the wheel but auto with the pad).
So the wheel sat idle for a week until I decided to splash out on wheel stand pro and what a difference it made! First race (without tweaking the the WTP set up, so peddles a bit of stretch, wheel a bit close) I won straight away on "hard". Waste of £60 turned into £160 well spent!
Downsides: not quite as fast as the pad (obviously you can't go lock to lock as fast on a wheel as on a pad)
Upsides: feels much more like actual driving, you tend to drive more like you're actually in the a car (holding back, waiting for a chance to pass rather than driving full throttle and bouncing off other cars (in an arcady sort of way, if that makes sense)
Yes, I' d love to spend more and get the full Fanatec setup, but MS wheel and WSP works great as a budget option (certainly more realistic than a pad) and the lack of rotation isn't a problem for me (but then I drive an Alfa which is only 2.1 turns lock to lock anyway), and when was the last time you saw an F1 driver spinning the wheel?
Conclusion: after many years of playing with a pad I'm finally happy to switch to a wheel, provided it's mounted to wheel stand pro.
EDIT: one other point, if you mount the pedals closer to you (i.e towards the end where the wheel support shaft folds), then the unit doesn't fold fully since the support shaft fouls on the pedal tray.
Cheers
Chris