Feldynn, what you described in your last paragraph is the perfect controller set-up. I'll share mine, which I've refined over the last few years.
steering - left analog
gas/brake - right analog
shift down/up - L2/R2
Look left/right - L1/R1 this is very important, allows you to quickly check your blind spots with a tap of a button
Look back - L3, you might accidentally steer at first, but you'll get used to it.
Handbrake - X, you may need it if you understeer way into a corner.
That leaves the d-pad and triangle, square etc buttons as horn/wipers etc.
Regarding following a guy into a corner, there's a good technique that minimizes contact without staggering. When your approaching the corner, before the braking point (which is always different... I don't really use braking points besides tracks like Fuji, just look into the corner and sense your speed and ability to stop, and you'll nail your braking point) get on the brakes, but very light. Just 10% brakes. When the guy in front slams on his brakes, you can instantly apply as much brake as you need - without having to waste time getting off the gas and starting to brake.
This allows you to follow a guy closely while minimizing the risk of punting.
You'd think you would lose a lot of speed this way, but it's not true. GT5 really rewards you for light braking.
And I somewhat agree with Ronin regarding giving someone room to go off. We've all been there. You could start first, drop a wheel in the sand and the whole field is going to pass you. I'm not saying it should be mandatory that everyone gives you room, but just have some courtesy and help the guy out if you can. It's not like weaving 10 feet to the side (if you have the space) will cost you much time, but it could save you precious seconds if it prevents an accident.
Also, remember shit happens. We are all here just to have some fun racing. Sometimes it's your fault sometimes it's not, just try to make the best out of it. Everybody's had the night where they are too frustrated to continue racing.