It's just a configuration file, it doesn't control anything you could really cheat with. I could understand changing resolution to be too sketchy since no version officially allows that, but I think draw distance should be fine since it's the same result as playing on Gamecube or PS2, it doesn't give an unfair advantage over other versions.

I use wined3d to play on Win7 and I think it should be recommended over DxWnd. Also, are there rules against editing sonicr.inf? You can use it to set max draw distance like on Gamecube, and to set custom resolutions.