That still leaves the house being able to cheat by knowing all the cards and telling the players which cards they have. I'm not sure we can do anything about that. It's the same problem with dice sites. The owners (who know the server seeds) can play as a player and win or lose the game on purpose.
Yes, and that is a problem when the money of the 'house' is not involved. I couldn't care less if Stunna plays his own game, but dooglus playing JD and I will refrain from visiting that site.
Also I forgot about the part where you have to be able to muck your cards... I will think about this today and hopefully come up with a way (just woke up so had problems understanding your text)