This would be awesome to do, but I think you guys are aiming way too high in your price.
Spending $500 on a car doesnt leave you with much to prep it for the race. Common maintenance items like wheel bearings, brake pads, hoses, belts, etc, etc.
You should be shooting for $100, or better yet, free.
I'm pretty sure rule-breaking is the norm. You have to cheat, but not get caught, to win, fudge the numbers a little bit (and by little, I mean a lot).
I dont see straight water as being a problem, I think water has better cooling properties than antifreeze anyways. Not sure if distilled water would work better?