The gig that was being thought of is not yet finalized, but we were thinking of a local shop that provides the service and not actually on the Internet. This way everyone has a fair chance because the machines would be equally spec'ed and no one will have the chance to install cheats.
I also had the idea of "bringing it to them", much like a local band would do. You start off small and bring the service to people who want to setup a LAN party. Once the name gets out, then they will come to us.
I also thought about the legal issue with the software. That's something to figure out during the planning, but I think there may be a way to do it.
In order to keep the machines reliable, my thought was to lease computers from a major company like Dell or...Dell.
I would then setup a Ghost system to clean the machines up before every event. They could also be locked down a bit to stop a few of the non-hacking type people.
Much like Clocker had mentioned, my idea was to use headphones so that there isn't a big distraction of noise, and also so that the gamer is not interrupted by sound.
Funny you mention gigabit Ethernet because I was looking into it.
Linksys offers a fairly affordable setup where you get a 32 or 64-bit PCI gig-E card (full duplex) and a 4-port router for a couple hundred bucks.
It would actually work out well since the router only has 1 gigabit Ethernet port and the rest are 100 Mb. I didn't buy it, but I was thinking about it.