There is an essential difference between hacking and duping. The below is only my own personal opinion and can not be seen as legal advice. I'm not responsible for actions based on the below and bla, bla, bla
1) Hacking is breaking through Sony's security measures. It is changing the way the systems works to circumvent copyright or other rights.
I did not analyse the whole PSN Terms of Service, but this is an example:
You may not use, make, or distribute unauthorized software or hardware, including Non-Licensed Peripherals, in conjunction with Sony Online Services, or take or use any data from Sony Online Services to design, develop or update unauthorized software or hardware, including cheat code software or devices that circumvent any security features or limitations included on any software or devices.
If you break the term of service, Sony has the right to stop the service.
2) duping is an exploit:
Wikipedia:
An exploit (from the same word in the French language, meaning "achievement", or "accomplishment") is a piece of software, a chunk of data, or sequence of commands that take advantage of a bug, glitch or vulnerability in order to cause unintended or unanticipated behavior to occur on computer software, hardware, or something electronic (usually computerised). This frequently includes such things as gaining control of a computer system or allowing privilege escalation or a denial of service attack.
If you use it in the way that infringes the PSN Terms of Service (privilege escalation, a denial of service attack, ...), Sony can stop the service.
However I can not find any reference in the Terms of Service that you can not use the functionality of their games to progress in a way through the game that was "unintended or unanticipated" in the design of the game.
3) If you dupe and use the number of paints or cars to win a competition it would only be unfair if you did not state you are duping.
Many people accept that you do things on your own (your choice) as long as you do not ruin the enjoyment of others.
Since duping does not give you an unfair advantage over other users in a 1 to 1 race, most people will not mind.
P.S.: I dupe