As much as I like this, I'm not sure how well it would work in a three-dimensional environment where the smoke needs volume.
At the moment, smoke is achieved with hundreds of semi-transparent sprites to give the effect of a cloud. Applying the above method to each sprite would result in hundreds of calculations every time someone locked their wheels.
I can definitely see something like this happening in the future, but I don't think it's something that can be implemented into the current build of LFS by applying it as a texture map.
If only you knew what you're talking about... Those demo's are fun, but try to get those in an actual game. Why are there pretty much no games with that kind of smoke you think? Imagine that with 20+ players on a server. Your PC will not be able to render that at a decent framerate.
Maybe not now but in future, this kind of smoke effects will be seen in computer simulations. I'm sure LFS engine could render this. Maybe not on full detail but you would see a big difference. The key is in the PCs GPU capabilities.