It is not fair at all, although it seems a lot of people near the top ranks time out if it looks like they are loosing, because they loose less points if they time out rather than loosing the full amount if they loose against a live player ...
I hate having people time out on me when I look to be winning a match :( Either that or taking FOREVER to play a card (play just a little quicker than the time out timer).
I wish there was a BUZZ button like onthe Yahoo Instant Messenger. When a person takes too long you buzz'em and the screen shakes or something irritating.
I know Fraggle and crew are keeping a close watch on the ELO situation and there's supposed to be nasty penalties for timing out a match. If they aren't suffiecient to stop that nonsense, I'm sure the penalties will become more harsh until they are forced to play fairly. However when ELOing watch those smiley faces. If these guys are timing out as much as you say then they're going to be orange or red very quickly.
You will lose a bit if you were higher ranked, win a bit if you were lower ranked (than your opponent).