First, let's be sure you understand how residual works. Your statement that what you spent "far exceeds residual value" makes me wonder.
If you have a residual value of $150, that doesn't mean that you have $150 to spend. It means that your car has been valued at $150 and you have the remainder of $500 to spend... $500-150 = $350. If you were looking at it wrong, does that help any?
If not, I'd go with option C. But, if your car is a big ol' heavy POS, they're probably never going to look at your receipts, anyway. (you being able to say "yes, we put some better shocks on since the last race, they cost us $xx from a lower mileage car at the salvage yard, I have the receipt if you'd like to see it" without fumbling all over yourself could be all you need)
Don't make your suspension TOO good or they're going to start questioning it. Not talking about how your parts look (though NEW parts will stand out... and judges are smart enough to look through any dirt or grime that you might add to them), but how they feel. Is your big heavy car suddenly uber-stiff? They'll notice. They'll ask questions.
Your answer should NOT be that you improved the suspension to make the car safer for other competitors. That line of BS won't fly, even though there might be a modicum of truth to it. Just be honest, your car handled like crap and you threw some parts at it to make it better. If you can at least make it appear that those parts fit within your budget, that's even better.
From the judge's perspective, we're all cheating. They expect it. They accept it within reason. How much you get away with depends on how much you TRY to get away with and how much you insult the judges with your lies, or even with truths that are perceived as lies. Like so many things in life, it's all about appearances.
Lemons South 2008 - Fail, Lemons South Spring 2009 - Fail, Lemons Detroit(ish) 2008 - Fail, Lemons South Fall 2009 - Fail, Lamest Day 2009 - Fail, Miami 2010 (Chump) - 2nd!, Sebring 2010 (Chump) - Fail, Cuba 2010 - Crew Chief, Roebling 2011 (Chump) - 8th!, Sebring 2011(Chump) - 19th!