This has been my experience as well. I was hoping to find a way to tweak the sensitivity but don't see anything in the emulator that seems to help.
I loaded the PS3 version and it seems to work very well as an alternative. Ironically Sega Rally and Indy 500 both seem to work fine in the M2 emulator, as well as Daytona 2 and other racing games in the Model 3 emulator. Hopefully it gets ironed out eventually.