Xbox does not support force feedback properly as far as I understand it, so a PC racing setup would be the way to go if you are going for realism.

I have the logitech momo wheel and it is an awesome PC wheel for 100 bucks or so. Has really nice almost real feel to it and the force feedback is strong. It just mounts to my desk and has pedals that grip onto the carpet or floor. It is sure a pain in the ass to setup though so for that reason it does not get as much use as it should.

For your project maybe I would use a racing cab with arcade monitor of good quality, and straight jamma/mame it and load the mame box with racing games only. Still not going to be as realistic as a modern PC racing game with force feedback (not that there are very many of these anymore anyways) but it will be good "arcade" fun.