It is a common misconception that the Laser rules don't apply for club racing. The new-edition RRS Rules 78 and 87 say they do.
Any Laser sailor can bring a protest against another Laser sailor racing outside the Class Rules, even in club racing, under ISAF RRS Rule 78.
The new 2009-12 RRS Rule 87 allows Class rules to be altered only with the permission of the relevant Class Association: don't hold your breath on this one. You can use illegal equipment for practice or 'cruising': electronic compasses, replica sails or spars, even an outboard motor if you can fit one, but racing with any of the aforementioned is a big no-no.
As Rule 87 is in Part 7 of the RRS, and Rule 86 forbids SIs to change anything in Part 7, a club cannot choose to ignore the Class rules through its SIs.
What should I do if I see another club sailor using illegal kit?
Bringing a protest for a Class Rules infringement may make you unpopular with your fellow-sailors, even if you're right perhaps especially if you're right. Even I would hesitate at my home club. But walking away and leaving the issue for someone else to tackle doesn't solve the problem. If, that is, you want to solve it.
There are several better first approaches. One is to get together to look at each others' boats, especially if you are relatively new to the Class, before you go off to an Open meeting. Have a chat with the 'illegal' sailor first, referring them to the Laser Rules if necessary, and only protest them if they refuse to comply on a later occasion after due warning. It's probably worth having a good look at the rules first before you wade in with the Rule Book unless you're absolutely certain. (Been there, done that.) If you're not sure about the Laser Rules, ask your fellow Laser sailors. If you are still not sure, email me and I'll tell you. And if I don't know, I'll ask the ILCA Chief Measurer. You deserve fair racing, and you should be able to get it.