I was messing around with burning cars today, and realised that apart from tire and fuel tank explosions, no other damage actually occurs . I think it would be awesome if vehicles got realistic fire damage. Where paint melts off to leave black charred metal, glass breaks, engine completely killed, all plastics, rubbers and other petrochemicals (bumpers, lights, interior, trim, ect.) melts away. Just like in a real car fire. In my opinion, this would bring the realistic nature of the game to a whole new level, would be rather entertaining also.
Yes, since you can still drive a car that is on fire, it will need to have progressive damage included at some point, although i don't think it'll be as detailed as the OP's suggestion (maybe just the black paint to show it burnt)
There has been an open thread that I created a while back about this topic. Feel free to check it out... --- Post updated --- http://www.beamng.com/threads/more-advanced-fire-behavior.22753/ This is the thread!! Feel free to comment on some of my ideas too!\