We have a guy in a server letting his AI racer do laps with us. Blue arrow and everything. How is this possible?

go into spectate and type /ai

That doesn't work on every server, does it? I would hope not.

I think it is possible on every server yes, although on CTRA any driver adding an AI to the race gets a pleasant kick, i'm not sure if Lapper and other race control systems have similar functionality.

It mainly depend if the server allow more than 1 car per guest...

... No, if the server only allows 1 car per guest, you can still add an AI.

This needs to be fixed!! If the server doesn't allow kick or ban you can't get rid of the AI. Even if the original player disconnects.

Yes you can... if the player disconnects, the AI goes with him, and the player that created it (and admins) can spectate the AI.

only way to stop this is by adding wind