Yeah, in Micro Machines V3, the AI isn't brilliant. They never seem to make any mistakes, but they also never run at full speed to compensate.
But in All Terrain Race, I remember the CPU would do stupid things sometimes, and sometimes it would make very smart things, like taking shortcuts.
This also happened in Nitro, developed by the very same guy.
In Road Rash you can see CPU drones punching each other, and the police punching the CPU drones. Also the CPU drones do crash and fall from the bike.
In GP2 you can also see the CPU doing smart stuff, and sometimes stupid stuff. Though I agree in this one I would like to see the CPU doing more "weird" stuff, you can easily see when they do something stupid, is a programmed stupid thing.
In the Sega CD game "Formula One Beyond the Limit", the CPU cars would spin off or crash in other cars, and they also would do anything to overtake.
In Destruction Derby, each character has it's own way of driving, some try to ram you, others just try to be as fast as possible, other are completely stupid... it's not GREAT, but it's very interesting.
I don't think AI is as bad as you pointed off, is just that some people don't know how to do it properly.