If the gunshots were all blanks and squibs, then how did the car window get bullet holes in it?
You answered your own question, blanks are what makes the muzzle flash from the gun, and squibs are the bullet "hits". They likely used the exact same method as a movie shoot would.
The Mind Experiment:
As soon as you forgot it you're playing. As soon as you think about it you lose. Loss must be announced. What happens if you break a rule?
You lose. Duh.
You seem to be forgetting the fact that the one possible option in the game is to lose it.
If you break a rule, like not announcing a loss, then you "cheated", which is worse than losing, morally speaking.
