Firstly, thankyou for your thoughts.
And it looks like I really needed to update my old ANet ^^

Designing this really is a nightmare but a fun challenge. I have been thinking about cheating problems for this and am designing an idea I would like to hear your thoughts on.

The basic idea is since it is a P2P environment, every client checks the "validity" of the results for incoming data from the other peers as if they were servers. Basic checks like when updating a position checking the distance/time from the previous known position to make sure he didnt travel too far too fast, when recieving "attack" data they check the time since the last "attack" to make sure they are not too frequent, etc... When any client detects "un-authorized" behaviour incoming from another peer in it's "zone" it sends a special message to all other peers in the zone stating an "illegal" action was detected from player X. When any clients recieve "illegal-playerX" messages from more than half of the peer in the zone, they add that player ID to their own internal "ignore list". Kind of like an automated voting system. So if a player is voted "cheater" by the majority all peers in the network "sever" the connection with the cheater, add them to their ignore list, ignore any further data recieved or connection attempts from that player, and no longer send any data to the "cheater" either.

A problem I saw with this system would be new players entering the zone. Creating an ignore list based on another peer's list could be dangerous, as it would leave the system vulnerable to griefers sending malicious "fake" ignore lists that include all players in the zone, leaving the game un-playable because everyone would ignore everyone else except the cheater. But not recieving an ignore list from other peers when connecting would cause problems too. Since they are all "ignoring" the cheater, the other peers are ignoring his incoming data, therefore they do not check his data and dont issue "cheater votes". So the new player would be the only one voting resulting in less than half of the network voting the cheater as "guilty".

So I thought that any player entering the network (zone) initially assumes all peers to be "trustworthy", if they find a peer to be breaking the rules they issue their "vote" as normal, any peer recieving this vote/warning also checks his ignore list and if the cheater is on his list he sends a "cheater vote" automatically.

Since it is a P2P network and there is no centralized server this system does not "enforce" any rules. Instead it is designed to just "isolate" cheaters from the P2P network. Essentially leaving cheaters alone in the dark with nobody to cheat on.
You cannot cheat on anybody if there is nobody to cheat on...

What do you guys think about this idea? Do you see any other potencial problems I have not that would need to be taken into consideration?