I think you're framing this the wrong way.

Is it fun to be a non-cheater, and join a multi-player game where there are other players using software cheats that let them easily beat you every single time?

I'm pretty sure I would quickly stop playing that game, and demand the publisher refund my money. That's just not fun.

And that's just as a casual gamer. For people who compete and win prizes, endorsements, etc., the stakes are a bit higher.

I'm not saying kernel-level rootkits installed on everyone's machine is the answer, but letting people cheat isn't going to work either.