Purposedly causing any kind of damage to the user's system would be a very bad idea (removing files, rebooting, etc.). It would most likely be illegal in many countries (Any kind of "EULA" doesn't give you the right to break the law), such things happening to people would bring alot of bad publicity and the danger of it triggering for someone who has the game legally would be there (some problem with the LFS user database for example).
I certainly wouldn't run software that has such functionality built in, and hopefully my antivirus system would't even allow me to run it.
i've got a problem with any sort of protection, all you need to do if this is what you suggest is delete your registration so it puts you to the demo servers and then what user are they going to ban? Not flawless...I say just send the bloody swines viruses, and lots of em, haha
Or, blast a sound saying that this person is looking at gay or child p0rn, hahaha, would be awesome
i say, if it detects a cheat, run something like,
999999999999999999999999999999999999999999999999999999999999999999999999999999999999999 error messages, and bring up about a million cheap viagra sites