Please correct me if I'm wrong but I don't recall anywhere on LFS where the flags are explained. The reason I bring this up is that a blue flags mean different things to different people. I personally race in the UK in MSA clubman races (MaX5). Therefore I follow the rules in the MSA 'blue book'. As I recall (I don't have the book to hand) all the blue flag means is that a faster car is approaching or trying to overtake. It does not mean you have to let that car behind pass. Moving on to F1, governed by the FIA, the blue flag rule is quite different. If you pass more than 3 blue flags without letting that car behind pass you will be penalised. This needs clarifying.
As for contact, all forms of motorsport (excluding bangers) is non contact. This included karting. And, being a clerk of the course for karting myself, gaining an advantage using contact of any kind has to be frowned upon.
Finally everyone needs to remember this is only a game! Some 'serious' drivers simply need to take a chill pill. I can't believe I've just posted this since it can all be summed up with chill out - apologise - forget it and carry on.