Hey!

The attached image is supposed to be a bug in LFS?

well, yes it is a bug, it shouldnt be able to do that, but LFS physics only supports the lower of the tyre

I wouldn't say "bug". It's working as designed. Since you spend comparatively little time upside down, collision with the entire tire isn't really important. I wouldn't mind seeing more than one contact point per tire in the future though.

Last time I checked it looked like there are at least 2 contact points (rays used for collision detection) per tyre. They are spread laterally at the bottom of the tyre.
If anyone doesn't like it, well, your game runs faster thanks to it.