1. If you start with the belief that people will cheat, they will. If you open it to every 'game-boy' out there it will happen.
2. Few of these things work without rules ( actually, none..) and controls so it can't be an open event to begin with.
3. Everyone wants to be the Hero Race Pilot, but someone has to be the guy who makes it work.
-- likely the easiest start method is a 'pace plane' a la Bob Hoover
-- either an airborne judge or multiple on-ground judges OR video review to check for pylon-cuts during the race.
-- the easiest scoring is an observer/Judge at the finish taking one/many screenshots
-- use of Duenna is essential to check speeds and altitudes as well as record Official Times
-- server should be closed to prevent unwanted visitors and an overload of spectators
4. There are several ways to police the aircraft, but knowing your fellow competitors is the first. Next comes practicing/testing together (or cross-testing the a/c). One issue that will have to be dealt with is the level of accuracy & reality of the given air/cfg files compared to the historical data (if you are using 'real world' aircraft).
Might as well ponder this stuff at the beginning, but that's not to say you can't be racing and testing ideas at the same time. Two or three pilots even racing the same plane online would be a good start to try out some of the scenarios and find the problem areas.
As for framerate issues etc. online, much depends on your internet connection and modem settings. DangerousDave26 has done a huge amount of work to provide tutorials and guidance - go read and get your settings right. With everyone using proper settings we regularly see 6-10 a/c online and the RTWR has had a post-race gathering with 24 a/c on one server
Now I'll get "editorial" and wonder why all the people interested in F-1 or Thompson or Bendix racing have never even looked into the multiplayer racing forums, or used the SOH servers or gotten involved with the RTWR Team where a lot of these things have been discussed for years...