I suppose Ray it is all a matter of degree and when it crosses the line that turns a car from a "classic" into a look-alike "hot-rod" with non-period and possible different marque components. Everyone will have a different opinion on where that cross over line is but the current position under the MSNZ regulations seems to be relatively restrictive in that it tries to preserve the integrity of the format of a period configuration. It allows "modification" that enables the likes of an Escort 1100 to be changed into a Twin Cam but it should be in the configuration of a period Twin Cam. Where it starts to get grey is when that so-called period Twin Cam starts to gain performance "improvements" that never existed in period.
The next step is the re-power you talk about and all the other like changes that go along with the re-power. I think there is a distinction between a re-power that recreates a period configuration (the Escort 1100 into Twin Cam example) and something that never happened in period. There is nothing to stop people doing these more radical modifications but the problem for them is finding a home to race their cars.
I haven't a problem with genuine period "hot rod" cars being classified as classics (as long as they are the real car and are fundamentally in period configuration) but I think it is pushing the classic boundary to use the existence of these genuine cars as the reason or excuse to build up any mixture of past, period and modern components and then try and pass it off as a classic car.
I know what your response is going to be and agree that a number of current cars with CODs are not that far from what has been described above.