Sunfish,
Firstly, go ahead with your homebuilt aircraft. You will have an AWI (Airworthiness Inspector). not an FOI, assigned to you and your project.
AWI's assigned to such projects usually come from a solid Civil avaiation background, usually General Aviation.
You can expect the AWI to be helpful and able to offer the benefit of considerable experience.
This is usually a true case of "we are from the Government and are here to help you".
AWI's without a GA background, i.e. ex Airline or ADF, can sometimes be a problem due to cultural differences.
I can recall a particular AWI who issued a defect report on a C182 because the rudder trim was "notchy".
His background was exclusive of single engine exposure and didn't know that most SE types use a bungee or spring assisted deflection of the rudder,
with its associated detenting mechanism, rather than a trim tab with its smooth opertaing mechanism as found on multi engine aircraft.
FOI's are a breed of their own, even the good ones are subject to peer group pressure from within.
Treat them with respect and great caution.
If you have a twisted shoelace on parade, they will find it.
The horror tales are regrettably mostly true. A targetted victim is the usual approach, and rather than look for compliance,
they are more focused on issuing "RCA's" (Request for Corrective Action).
Not only is the number of RCA's issued a measure to their leaders of their effectiveness, (bit like a quota of bookings for a police officer),
but it helps to sway a lay judge or magistrate if numerous RCA's can be presented.
It does not matter how trivial the RCA is, or whether in fact it is valid, it serves to reinforce their agenda.
Having said all of that, there are many fine and respected FOI's with their integrity still intact.
And as for the rules and regulations fiasco, as has been reported before, the Australian Government funded the overhaul of the PNG regulations.
Papua New Guinea adopted, with fine tuning, the USA FAR's.
Almost all Civil Aviation Authorities in the South West Pacific have done like wise, including New Zealand, Solomon Islands, Vanuatu, Fiji etc.
They have even formed a mutual organisation, PASO, Pacific Aviation Safety Organisation.
Australia is obviously incapable of adopting the US FAR's, being inclined towards the mish mash JAR's and the franchise type execution and adoption of them.
After more than twenty years of progress with our regs, we can expect at least another twenty,
rather than a common sense approach as taken by New Zealand and PNG.
And of course there will be justifications as to why the regulations of the world's pioneering
and foremost aviation nation cant possibly be adopted here.