I can't say for certain which generation it was, but this was
about two years ago, and the problem was that aluminium was too
soft. Audi drivers were getting pretty annoyed with how easily the
rims were getting dented by potholes, so they started switching
over to aftermarket rims. Audi sent out an advisory against such
changes: if the wheels were too rigid, shock would be transmitted
up the suspension and chassis, damaging both. The drivers were
unimpressed with the softness of the chassis, and subsequently
dumped their A4s.
I agree with what you've said about Toyota - the original Lexus
LS400 certainly made Mercedes, BMW and Jaguar rock back. Then
again, in the supercar bracket, the Honda NSX had pretty much the
same effect. I see Toyota's problem being similar to Volvo's - they
both need to get away from their "safe but dowdy choice"
image.
As for F1, Merc has been in the wilderness since beryllium was
banned, and overall the team strategy leaves much to be desired.
Changing 96% of the parts on a championship-winning car was nothing
short of stupid, and 18/19's nose was a mistake that they took two
years to correct. Ferrari's current dominance is owed to the fact
that while Ferrari are building logical developments on their
already successful cars, the other constructors are trying new
approaches and dumping them before they've had a chance to bear
fruit. As always, the development priorities for the engine
builders is reliability, power and weight in that order. Both
Toyota and Honda have spent the last few years working on
reliability and power, and now it's time to get the weight of the
engines down. Renault, in the meantime, should have stuck with
their wide-V design instead of following the crowd with a 90-degree
design - despite having less power, the wide design allowed for
better weight distribution, and was actually starting to come good
when Renault dumped it. Big mistake.
I would put neither Half Schumacher nor Yawno Trulli down as
championship material. For crying out loud, when Halfie switched
over to Toyota, he couldn't drive their supplied road cars - he
even crunched his car while parallel parking because he forgot that
the Toyota didn't have the BMW's proximity sensor. 
Montoya's been pretty
disappointing too - he's gone from Formula Juan to Juan-Lap-Wonder.
I'd say that the guys to look out for at the moment are Raikonnen
(even though he had a crummy year last year), Alonso, Webber and
Button. Of course, this year's going to be another entertaining
one, what with Rubens still claiming that he has a shot at winning.
