The current model certainly has some quarks in it. Rarely do I have a collision where both receive damage. And the occasions where that does happen, the damage is very wierd.
For example, I collided with a spitfire when I was in a hurricane. I lost my aileron, he lost his wing and was flaming. Another time I took off a wing of a 110 with my elevator.
But most of the time, I die while the other flys merrily on. Me and my dad think its because we have a fast connection.
What I think the collision model should be, and I'm sure there will be a lot who disagree, is the data on how the collision took place on the FE who saw it would be transmitted to the other persons FE, so the collision damage would be real. If one person sees a collision involving his wing on the other guys tail, the other guy's tail gets cut off, along with the first guy's wing.
Something along the lines of that I think would be cool, but it'd be wierd if you were the guy who's FE didn't see the collision. But at least this way, both are encouraged to not get too close, and one person doesn't get hosed while the other keeps going with no damage.