OneFiercePuppy: Why does no-one mention TIE Fighter? While you mostly can't upgrade the ships, you get quite a wide variety, so you still get to upgrade what you're flying, if not directly. And TIE Fighter is one hell of a game. Granted, ok, it doesn't really speak directly to the second sentence the OP posted, but, still. It's an amazing game, and a decent flight sim.
OP: Look into NEXUS: The Jupiter Incident. It's aged quite well, and while you'll usually not be controlling just one ship, it's a good space sim, with ship upgrades as well as pilot upgrades (though the pilot upgrade part is really lightweight), and an interesting setting.
Look at my first post.