(Playing the devil's retarded cousin's advocate) the layout & wording on the LFS site can be misleading on this issue at worst.
looking at the cars & tracks page and glancing at the "before you buy" introduction. It seems like you would just be limited to a certain car/track selection - not completely segregated from the entire playing population
It would be nice if the engine/netcode were re-done to allow the communities to merge (e.g. S1 users can only spectate on S2 tracks, and only participate on S1 tracks where S1 cars are allowed), but honestly - being S2 licensed already I'd rather see simulation improvements first.
I'm not even sure why S1 is still sold as it is with the current segregation system, i'd at least put up some big bold letters saying "THE S1 LICENSE IS AVAILABLE FOR CONVENIENCE PURPOSES ONLY, YOU WILL NOT BE ABLE TO JOIN 99% OF ONLINE SERVERS WITHOUT S2".
Is there a reason that LFS isn't just using unicode? HL2 seems to do it fine ... you can type in any language, see any language (as long as you have the input support/fonts installed).
Though I guess it's due to the way LFS handles text ... I'd strike a wild guess that HL2 just takes advantage of windows 2k+ native unicode support and renders the text to a texture or something.
Since LFS is Windows-specific, can't it skirt around the issue by just using the included MP3 codec that microsoft has already licensed for you?
I think GTA:SA PC is one example of this, while the previous versions had MP3 specific licenses, SA will just play any audio format that you have a generic windows/directshow codec for - including ogg, flac, wav, mp3, mp4, etc.
Might be worth looking into.
Personally I've always just used an audio player that has global hotkeys (foobar2000, winamp5, winamp2+plugin), so I can assign shift+alt+z/a etc to change tracks and other things while in LFS.