They are being banned for the game code being modified in memory, the anti cheat knows nothing about the fact that input latency was decreased. And no, reducing input latency is not considered a cheat, anywhere, no game does that.
Yep exactly. It does remind me of the story of someone coming to quake con in the 90s though and using a "feature" of idtech game engines where it tied a lot of code to frame rate and thus once you get enough fps, time accelerated effectively for that player. I think it was ruled not a cheat for that season (I could be wrong it's been over 20 years) but discouraged for future years.
Not sure if that's what you're referring to, but quake 3 physics behaved differently based on the client frame rate. 125Hz made all of the physics steps round up when jumping, allowing for just a little extra height that allowed for some jumps.