There are different levels of abstraction you can aim for when writing an engine model. It's not necessary to write a full 3D FEM system in order to make a very realistic engine simulation that produces torque/power curves that are close enough to reality. I've written three or four engine models over the past decade or so. They range from simple to very complex, but they don't need to be 3D mesh type things that take forever to run to produce very good results. (They do, however, take a very long time to write if you've never done it before and are not already rather knowledgable about engines. My latest engine model is arguably more complicated than my vehicle dynamics system from a programming perspective.)
The drag racing simulation I wrote, Straightline Acceleration Simulator, has an engine simulation in it that I wrote mostly while in high school (QuickEngine Builder). If you check out the demo, you'll find it runs a complete torque/power curve in a fraction of a second. Granted, it's a much simpler model than my latest stuff, but it works quite well regardless and is plenty fast enough for use in games. Since then I've done a lot more complicated stuff that does everything you guys are talking about and more, but they do take more execution time to run.
For a good portion of the past few months I've been writing a 2-stroke engine simulation based on what I've learned writing 4-stroke models for inclusion in Virtual RC Racing 4.0. So far the results are quite good and we fully intend to have this engine tuning in VRC as it's very much a part of real racing.
The setup options that can be changed in the model are very extensive (all the port timing events and passage sizes and so forth, it's a full blown wave action simulation), but we're not going to have more than a handful of them available for the public to play with. I.e., in reality (in RC anyway) people play with different exhaust pipes, glow plugs, and tune the fuel mixture, and that's about it. They might grind the exhaust port a bit to change the exhaust timing to shift the power curve around a bit, but usually only the pros or very experienced racers mess with that. However, one of the cool benefits you get from it is that when weather conditions change the curves are effected realistically. You need to change the mixture a bit or maybe the glow plug in order to maximize yourself for that weather condition.
Exhaust pipe selection moves your power curve around, trading off low end torque for top end power or vice versa. In the current VRC version we allow a limited form of engine tuning so people can already play with the exhaust or select different engines, but it's all based on multiplier tables running off a real engine torque curve and so on rather than an actual simulation like I'm working on now. Still though, nobody complains about it in our community and simply sees engine setup as another thing to play with to get the car running how they want. In fact, quite a lot of them have asked for more engine variables to play with.
Attached is a dyno run from the simulation in its current state. There's still a fairly long way to go yet, but you can see how it compares to a real engine. The green lines are the torque/power curves of a real engine, except for the low end part where the torque curve is flat (this was at a low rpm where we didn't have any dyno data.) The red and black lines are horsepower and torque, respectively, produced by the simulation. As you can see it matches up quite well, especially for a model that runs the entire curve somewhere between 0.5 and 1.5 seconds or so. So you really don't need to have a super complex model that takes hours or days to run like the manufacturers might use in order to get pretty close results.
As for the various arguments pro/against engine simulations in racing sims, I must admit I find the "it'll complicate things and I don't know anything about engines" argument a bit ironic. I agree with others that you're already setting up the chassis, which is a very complex thing indeed to do, and that can easily make the difference between winning and losing a race. Most of you guys know quite a lot about setting up a car and I'd bet it's mostly because of the sims you've been playing. You learned to do it. And you can learn to set up an engine as well. In fact, you might find it easier to set up an engine than the chassis
You really don't have to be sculpting your own combustion chamber and port designs in 3D or anything like that. Nobody does that but the engine manufacturers anyway.
Engine tuning isn't about getting stage 1 this, then stage 2 that, and so on, where whoever has stage 4 of everything blows away the competition. That's indeed very arcade and I suspect many of the folks that are against this idea are picturing that happening. I agree that if that was the case it would ruin LFS for a lot of people. However, if the setup options were realistic it might be quite fun and really not ruin things the way folks are thinking.
In my big car sim I regularily play with engine tuning by running curves off my QuickEngine Builder and find it to be really fun to do. What most people probably don't know is that making an engine produce absolutely as much horsepower as you can make it create is actually going to kill you. I.e., if your engine is going to blow up at 7000 rpm and you try to produce literally as much horsepower as possible, what you'll do is choose parts that get the torque to peak as close to 7000 rpm as possible. Then you can tell your friends about the 5.7L 600HP combination you came up with. Then you show up at the track and find you have absolutely no torque coming out of any of the corners and are getting blown away by guys with 400HP.
Yesterday I was running a 500HP car and swapped in a 750HP motor in my sim. My lap time on a minute and a half lap only improved by 2-3 seconds. Why? Because this particular track only had one straight long enough to take advantage of the power. You can't do a whole lot with the wheels spinning all the way down a short straight between two turns. Adding more top end power just makes it harder to control. So really, it's not necessarily a matter of "whoever makes the most power wins." You need to make power over a certain rpm range depending on your gearing and the track. Your numbers won't be as impressive as the next guy's, but he's left scratching his head as to why you've got 100HP less than he does and are smoking him
Anyway, if done right, I think it'd be fun. Plus, it might be fun to try different "engine manufacturers'" engines by downloading them. It might be fun and open up a new area for bragging rights