Several planes were noted to fly on without diminished power even after taking significant damage. Either an LA pilot or a 190 pilot (either the LA shot the 190, or the 190 shot the LA, I don't recall) had 2 of his cylinders shattered and flew on. He said he didn't notice any diminished power.
Several P47s have taken significant damage to the engine and kept flying without trouble.
Currently AH models only radiator damage and oil system damage. IMO those are supporting the engine, not the engine itself. Maybe we just have stronger engines, like all those stories where a Spit1 spewing oil, glycol, gas, and all other sorts of fluids flew on back across the channel to england and safely bailed over Dover, or safely landed in a country field?
Engines didn't seem to conk out immediately, as IL2 would have you think (take a hit anywhere in the engine and you lose 50% of your power within 15 seconds in that game).
EDIT: I'm all for a more complex engine damage system, don't get me wrong. I just don't want what IL2 has. I would like a new sound, if the engine lost power, and depending on the type of damage you would lose power (but only if the damage was related to that power loss).