ALMS mod works fine, so you must have put something somewhere it doesn't belong. Mounting an image isn't enough if you don't have the right file, one that emulates copy protection physically on the GTR disc. Use a mini image or a no-cd patch.
Pretty sure I updated to 2.1, I don't see any downsides in doing so.
It may be possible to set up a VPN with other people in such a way that everyone appears on the same local area network, and play that way. I've done VPN with LAN IPs before with another game, but it was ages ago and wasn't a cakewalk. Possible, if there is sufficient interest.
The real speed, wall, damage and tyre hackers are incredibly rare tbh. Bad drivers and passive-aggressive crashers I see every day, but I've literally never seen a speed hacker on an S2 server, and I have a few miles under my belt.
Well, an iso is an image already. I don't tihnk there's much point in extracting the files and making another image from the same extracted files. I'd recommend getting another image I think the GTL disc has some physical copy protection that cannot be replicated in iso format.
Path check was failing quite a lot yesterday, even while being clear of cars and in the middle of the track. Can *other* cars lagging (while not being near to a hotlapping car) cause someone else's AIRW HL to be invalidated?