This has been one of the more reasoned and informed threads I've followed in recent times and I've enjoyed the contributions by some very well respected people. In reponse to your comment (Pat Slinn) about being beaten by someone using an illegal engine, I generally try to assume that my fellow competitors are within hailing distance of the regs...;-) However, on the odd occasion when there's some doubt, the ultimate sanction of engine stripdowns still exists. BUT, the reason I wouldn't personally be too quick to use this sanction is that (i) if an engine, despite possible use of illegal bits and pieces, is producing no more torque/bhp than a well assembled legal motor, there's no advantage gained by its user/rider and (ii) I'd only advocate the use of a stripdown by officials IF the torque/bhp figures made it obvious that the engine was clearly oversize.
Like nearly everyone else in club racing, my budget teeters on the edge of insolvency most of the time. When a mandatory stripdown occurs, I usually have to concede that the season is over for that machine as I can't take the financial hit of an expert rebuild without a winter saving up for it. If I'm in that position financially, I have to assume most of my fellow competitors are similarly constrained.
The final observation I would generally try to bear in mind is that even if I bent the rules completely out of shape and used a blatantly illegal motor, there's nothing that is going to make up for the talent shortfall I'm personally equipped with!