Ninja, I'd imagine that if they did Battle Mode something like I sugested, that the hits wouldn't be that dynamic -- meaning that even if you hit the front of the kart head on, the balloons would be taken off the attacker first. Perhaps a better way to think of it is that the back of the kart has 3 balloons (when those are gone, the attacker falls off) and the front has 1 balloon. Or just 4 balloons, and when 3 are gone the attacker falls.
If they do go with balloons again in Battle Mode, I think it'd be cool if they did a little more with the balloon idea. At the very least have the different characters use different balloons, but it'd be cool if you had more balloons and you were a lighter character that if you went over a jump, you'd float down
I totally agree about the falling aspect, though. Falling wasn't so bad in the SNES game because the AI was so stupid that they'd fall off quite a bit, too, and even good racers would take a fall or 2 during a good race on Rainbow Road.
But falling off Rainbow Road in the N64 version was death -- you fell for about a minute, and then lakitu would finally bring you back up. I agree -- falling was MUCH worse in Kart 64. It was also probably the most frustrating part of the game for new players, too, as some boards needed pretty good control in order to simply stay on the track (like that yoshi track with the 50 million paths), and there's nothing worse than just starting a game and falling off all the time and losing. It also made some of the battle arenas really lame too, notably the donut shaped one, as you'd usually get hit by a shell AND knocked off the track. Among my friends and I, we'd always play on the 3 level boxy level with the bridges, because that level was all about skill and timing, not just trying to out-live everyone else.