Well....the coolest sims I've tried are indeed physics sandboxes optimized for one type of machine or another. I've grown out of FPS games, although they represent this when they're done well, but you can just as easily make the sandbox argument for car racing simulators, flight simulators, naval simulators, and train simulators, which I think are the dominant sim categories on the market. Some simulators, like Microsoft Flight Simulator or Auran Trainz, have built themselves up to their current gargantuan size largely through third-party plug-ins. Trainz was actually planned that way, since Auran (now N3V) understood from the beginning that its users would immediately begin modding it, taking a lot of the burden off of Auran/N3V (which is sort of a ripoff since a lot of the plugs are crap anyway, but I don't hear any Trainz enthusiasts complaining).
There are also, of course, sims like Battlefield or Arma that try to integrate many simulated technologies into one, but since these are war games they've largely lost my interest. Using their game engines, however, might not be a dumb idea. Many simulators are already capable of accomodating different vehicles, for example, than the dominant one. For example, the final versions of Microsoft Flight Simulator could simulate boats and ships (in a very basic way).
I think what makes all the Street Rod games distinctive is that they're racing games where you do the modding in-game, much like in many war games like Metal Gear and for that matter almost all Fantasy/D&D Role Playing games. While in-game mods and power-ups go back at least to Pac Man, in racing games/simulators they're much rarer, and the relative authenticity of the Street Rod mods make them even more appealing. Having to handle virtual budgets and sales makes it an even better simulator/game, in my opinion.
However, as I've already posted today, with the amount of plug-in making that goes on today with all of the better games, the potential of SR3 once it's done should be worlds different from SR2, even if you ignore the advances in graphics, physics, and sound over the past 23 years. Hopefully the built-in features will be great, but it seems a given there should be a range of plugs available as well. This is without getting into multiplayer support, which also didn't exist in SR1 or SR2, not even for two joysticks.