It seems to me that running at the kernel level *should* be acceptable *if* the user knows what's going on and agreed to it. "Yeah, I knowingly installed a virtual rootkit because I trust the developers and want to play this game."
Sadly, none of this should be needed in the first place - but here we are. But, yeah, an informed user should be able to make that decision.
The bit about the 'obviously they can't hook into the kernel' isn't (I don't think) a technical limitation, it's a limitation of what they think people (particularly) Linux users are likely to put up with.
But, if it's an informed choice... They could also probably make the client-side code opensource.
And, well... Gamers are known for taking a ton of abuse and putting up with all sorts of nonsense to play a video game.