I think this topic has never been discussed properly because there are several issues wrapped into the one sheepstation metaphor.
If my brain would work properly, I'd try to break it down into said issues and address them one at a time. It's not, so I won't even try.
Here are some anecdotes/thoughts to keep me from doing work.
1. At high school, we invented a game called "Toccer". It was a highly informal, stupid game, designed exclusively to keep fourteen year old boys amused at lunchtime. There was one guy (who was actually a pretty good mate of mine) called Andrew who always took it far too seriously - he'd debate every call, he'd get agro with other players, he'd try to stack the teams, and all the rest.
Now, we all wanted to win (being testosterone filled young men), but Andrew NEEDED to win. He didn't enjoy the game unless his team was winning, and would sulk for the two periods after lunch if he lost (or sometimes even if he lost an argument over what he considered a dubious call in the game).
Basically, he would ruin the game for everyone else. You had to tread around him on tippy toes, balancing what you believed was right and your own sense of competitiveness, against his desperate need to win, and the consequences if he didn't get his way.
We ended up giving away Toccer, and playing either of two versions of "Wall Ball", because Andrew didn't take them so seriously and it was much more enjoyable for everyone.
He ended up with the nickname "Richard" (dick) until the end of Yr12, largely based on how he played Toccer.
2. We all want to do our best. We're all spending lots of money to go rallying, regardless of our speed or competitiveness.
This is just the way things are, and for the purposes of this discussion, I have no problem with it.
But you want to play the game on equal terms with no back-stabbing bull-
datsun.
Through 2004, the Clubman championship was a three-horse race. It was good fun competiton that never went entirely anyone's way. I'm still very proud of being able to claw back a fair bit of time off Smee at Bega to win the CM part - he laid down a challenge, I chose to accept it, and I happened to be successful at meeting the challenge - like I said, good fun, solid competition.
There was one incident, however, that left a bad taste in many people's mouths at one of the rounds...
In hindsight, it was a minor bit of game-playing (or possibly selective stupidity) that didn't work, but the thing was that it pissed off a lot of people, and meant that the player of the game copped flack from many people for the rest of the year... Had to wonder if it was worth it for him... He certainly lost my trust for the rest of the year...
One of the things about competing against RayBak, Smee and Fiona, Russ and Andrew (among others) is that you knew there was no bull-datsun going on about stage times or anything. The winning was done on the road, not through creative time-keeping or anything else.
I guess what I'm trying to get at here is that we're involved in rallying to go and get sideways and go fast. Driving faster makes you closer to that goal - being 'creative' with what you tell other competitors doesn't make you any faster through the stage...
The fact that I'm saying positive things about Smee's conduct in the forests should mean something, given his and my near total inability to see eye-to-eye the rest of the time.

It's about sportmanship.
3. Nobody's car is totally legal. The hyper-competitive people scare everyone else, because there's always the chance that they'll read the regs properly and start looking long and hard at other peoples' cars.
Nobody wants the poop fight that will happen if someone puts in an official protest about the location of a roof vent. Do you remember the conversation on the E-group at the end of last year?
Would you be happy to win a championship becuse you succesfully protested someone for having an under-sized oil catch-can?
Did it mean a single thing to how fast they were?
At risk of diverting myself, I'm not talking about cars with over-sized turbos, or the wrong engines or anything, just about those trivial things that are "not within the rules".
4. "We're not driving for sheep-stations" is often used at drivers' briefings to say 'use your brain, even if you win this event, you'll still be back at work on Monday'.
Sure all/any of us could go out and drive over our heads. We could probably set some relatively impressive stage times and therefore be more competitive - but at what cost? What if it takes ten events and nine cars to get a good result? At the end of the day, what does it mean that you finished 10th at a Clubman round in a POS rally car? You'll still be known as one of those unguided missiles who only finishes once every ten events - nobody will rate the result, or you as a driver.
5. Rallying is still a bit of an adventure. Simply getting to the finish is not a given by any means. Therefore, anyone who gets to the finish venue in the rally car is a winner to some degree. Why not enjoy the common sense of achievement with other competitors, and not ruin it with "you bastard, you beat me"?
Rallying means different things to different people - don't force your sense of competitiveness onto others (at which point I'm returning to #1).
6. I've often said that my goal is to go as fast as I can. I don't care if I come last if I've genuinely driven hard and nothing has buggered up for me.
The problem that many sheep-station people have is that they don't try to improve themselves, but to put other people down. I guess this ties back in with many previous points - being competitive by doing whatever you can to improve your driving/navigating, team-work, car, whatever is fine by everyone.
What pissed people off, is the mentality of protesting/threatening to, of not helping other crews, and doing whatever you can to ensure you beat them.
At RoC last year, JME came and very politely asked if he could borrow Frinky to weld up something on Darren's Evo. I said 'yes' automatically*, but I thought about it later - if I'd said no, it would have almost certainly meant a podium finish for Teh Beetch and I, significantly large prize-money** and a whole heap of other things.
Would I do the same thing again? Hell yes!
Why wouldn't I? They were significantly faster than we were, and why wouldn't I want them to do well? Would I feel the mighty weight of karma if I refused? What price would I have to pay in terms of people who now identified me as a sheepstationer?
Even if I ignored my own sense of right and wrong, would the pain outweigh the possible gain?
7. It seems to me that KW's interpretation of "sheep-station" is different to (say) Bog and Lizzy's. Karl wants to go out and win, whatever it takes - and in the absence of any evidence of being a jerk to achieve it, I wish him well (and I dare say that Bog and Lizzy would too). Seriously.
(I re-read, and it sounded a bit sarcastic and patronising, which was unintended). That he's running at the very top of any field also skews his views too - a win is a win, and it's what really matters. Playing games with fellow competitors to drag yourself up from 48th to 37th is a different story...
On the other hand, B&L seem to talk about sheepstations in a way that reflects my previous points about hyper competitive, selfish behaviour which misses the critically important aspect of [wunk phrase] the spirit of competition [/wunk phrase], in favour of the desperate need to win.
I'm dribbling now, but I guess it comes down to the bit where everyone wants to win, it's just that only one crew from the thirty (plus) crews entered is actually going to win. Of the remaining crews most are comfortable with not being The One Crew and are making sure they get some enjoyment from the money they've spent on the rally.
*I kinda didn't feel it was my call to make - if anyone other than Ben had a say in it, it would have been BossHair, but the ego massaging was nice.

*3rd OR, 2nd Privateer - woulda been about $750 extra IIRC.