Wouldn't player be able do become invincible any time they want by covering the "inceptor" with their hand (with some distance between so occlusion can't be detected using light detectors)?
Well, it's the same problem as laser tag: it relies on players being honest. For that reason, I can't imagine playing this with strangers.
They might devise a "karma" system where a player is kicked out once N players confirm the guy is cheating.
This reminds me of the books 'Daemon' and 'FreedomTM' by Daniel Suarez. Entertaining reads for those interested in what such a karma system might look like when installed as a ubiquitous feature of society.
Or the idea of "whuffie" in Cory Doctorow's _Down and Out in the Magic Kingdom_.