Most races I have run or competed in have been similar to sailing or windsurfing.
The start rules can change from race-to-race but once under-way the normal right-of-way rules apply ie starboard tack has right of way, upwind kite(s) high/ downwind kite(s) low, etc - see
http://waksa.org.au.86.aspwebhosting.com.au/info.aspx for full details.
I have found that a wide, deep start line so there is no advantage from any position along the start line with a long initial leg across the wind is the best start setup. Unless you run heats of small numbers of kiters, beach starts are a nightmare and unsafe IMO.
If people want to be able to compare times then everybody needs to start at the same time unless conditions are super consistent. If you use placings within heats then as with all heat-based competitions you can end up with winners of one heat that could have been last in a harder heat. Unlike freestyle the result does not rely on judges opinions (except on a breech of rules) and it is better to be able to compare race times under exactly the same conditions IMO.
Start and finish lines are usually marked with flags on two boats or between one boat and the shore. Flags, horns and official race time are used to start.
Penalties for breach of rules can also vary from time added to finishing time, a monetary fine, to disqualification from the event/heat or series. Like sailing, car racing, etc - what happens to the guy that is taken out by the one in breech of rules is always a problem - there is no time taken off, etc ... it's just bad luck
If you're organizing a race KISS (keep it simple stupid)
