Yeah. I've thought about an idea similar to this before, but I always end up chucking it.
Rather than a "You are dead" message, I always invisioned the screen just fading to red or black.
The major issues I've always had with it, are as follows:
Pitting and unpitting should fix it, but then it becomes just sort of silly. After all, people pit and unpit for less serious things all the time. It wouldn't become too much of a deterant.
Until the damage model is improved on, its got some serious flaws. The idea behind the roll cage is to provent the cockpit from crushing the driver, however the rollcage bends in the current damage model. This allows 'helmet clipping', would would result in instant 'driver damage'.
Game rating might take a hit. I don't know how that works, but I suspect any video game which attempts to simulate the effect of human injury might recieve a less than E rating. One of the great appeals of a racing simulator is: Its non-violent (in concept). You're compeating, not trying to break into a building to shoot up a dozen badguys. It breeds sportsmanship, not violent tendencies. If you could 'hurt' the other drivers by ramming them... well, lets just say I've seen games get more restrive ratings for less.
Also, when the damage model DOES get improved, what happens when a projectile punctures the windshield on the driver's side? Ugly.
My vote?
-1