They are only restricted in the way that they have dinky little carbs, restrictive port design, and poor performing exhausts! All consequences of the MC16's production era I'm afraid!
The ignition (although not great by today's standards) is not limited however, so although you would probably benefit from an MC18 R2J/R4J harness/PGM, it should be sufficient for a tuned motor still.
With some porting work, optimising of compression, MC18/21 carbs/manifolds, and some expansion chambers, there isn't any reason why the MC16 can't produce power similar to that of the later models.
Race expansion chambers will be the biggest issue - not many around these days!
Biggest gains on the MC16 would be made by upgrading the suspension, tyres, and brakes! MC21/28 SE/SP adjustable forks will drop straight in, allowing the use of the later rim and brakes, and I'm sure (but this is pure speculation!) an MC18 rear swing-arm could be grafted on pretty easily. If this were the case, the MC21 17" wheel then slots straight in to the MC18's arm!
Ask Nigel Moss what a 40hp RGV250 VJ23 with good suspension, brakes and tyres can do against 55-60hp bikes on a wet track... he was only in that very position at the track-day in Llandow last Saturday!
Andy.
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