I also say go with modded xboxes, it is the easiest and cheapest way to go. There are a decent number of racing games that support system link, which is the only way to do it, unless you want to have a split screen. then all you need are a few ethernet cables and a switch.
you should be able to connect more than one wheel to a single xbox without any problems. the advantage of modded xboxes over a standard xbox is ease of use for the user. you can have the xbox boot up to a custom dashboard/game launcher. you can install all the games to the hard drive (if you install a larger one) and that way there is no swapping disks. it boots up, shows a list of games, you choose the one you want and it loads. when you are done you can press a special button combo, and it will reboot back to the game launcher. loading times are also greatly reduced when running games from the hard drive. and since you don't need anyone to swap disks, you don't have to worry about your game disks getting ruined. you can also customize your dashboard with your own artwork to make it fit into whatever theme you go with for your cabinet. and if you leave the controller ports accessible, you could easily plug in a regular controller and have a great place to play other types of system link games.