I really appreciate all these that say they greatly simplified the rules. I struggle every year with parents interpreting the rules in different ways and trying to call out other cars as "breaking" the rules. This year, a family member helped with my son's car. I kept getting questions about whether his was legal or not (it was legal), but it made me a nervous wreck that people were thinking my son (and me!) a cheater. I really did not like that feeling and would hate to put someone else in that situation.
During a previous year, the race administrator caught that one of the cars had an illegal extended wheel base. He called all the kids over away from the parents (parents could hear, but could not provide input). He explained the situation. He said that the family worked hard on the car. He told them that it might make the car go faster (or it might not), but he bet that the family did not know that they were doing something illegal. (They didn't.) He let the kids vote and of course all the kids voted to let it race. He said, "and that is the last I want to hear about it". It worked out.
Of course, though, I don't think you did anything wrong in enforcing the rules. I would imagine that the other kids would have been very disgruntled that someone broke the rules and got away with it. Certainly following the rules is an important lesson and the District Derby would be much more strict!