The simple fact of the matter is this: LFS is not real life, and not all the same rules apply. However, the same principle applies; drive as fast as you can within the limits of the environment you are within, regardless of how "realistic" that may be.
But despite this fact, I will point out a few things. a) "Cutting" the chicane gains the tiniest of advantage (less than 0.05 seconds), and since you can get away with it in LFS, people do it. If I could get away with it IRL I'd do it, since a racing driver is always looking for ways to go faster and faster. b) Low 1:12's are still achievable without cutting the chicane.
Check out the following replay's of v1rg0 (Jack) and myself:
http://www.lfsworld.net/get_spr.php?file=33261
http://www.lfsworld.net/get_spr.php?file=10663
In these hotlaps the chicane cutting is minimal to the extent that it would probably be sensible enough in real life, and yet the laptimes are still very quick.
I hear this so called "unrealistic" tag quite often, and sometimes I feel it's an excuse.