Maybe better; how long/how many sessions do you want these to last and how mobile do you think your combatants are going to be? That's where my concerns come from. That, and the sensitivity aspect.
Ah, I suspected that this is where we would go at some point. Being able to see the beam is not a function of power per se. It's a property of the atmosphere. For the beam to be visible you need scatter as a result of atmospheric pollution/particles. Think smoke or vapor. So if you want this, you'll need to fog the whole area just enough so the beam is visible, but not so much that it comes at the cost of a significant amount of power (after all, all scattered light nicely shows the beam, but cannot detected anymore by your sensor!) That's going to be a balancing act, and I doubt it'll be feasible to begin with - perhaps in an indoor setting, but even there it will be tricky.
How about using visible laser for show and use IR laser for detection? That way you can throw a bit more IR power at it (since it's less damaging) and it filters out from visible a lot easier than e.g. green.
That'd be the fun part. We don't be talking about Arduino's anymore but proper electronics.
One final question before this is marked as resolved.
Could I hack one of those IR LED breakout boards, replace the LED with a weak IR laser, and send data via laser beams? Seems really far fetched but I'm curious. If you don't know I can always just pick up an IR LED breakout board and solder a red laser into it.
Probably, yes. In the end that's also how the laser tag system works. What you'll have to figure out of course are all the specifics. The overall idea isn't that complex - getting it to work is quite another issue.
...reminds me of a "live" fire training system I saw at a trade show a long time ago.
Actual weapons (pistols, rifles, SMGs) were used, with an insert in the barrel, housing a shock sensor*, battery and laser.
The weapon was loaded with blanks, the shock of firing of which triggered a coded pulse from the laser.
The receiver was a vest woven with an optical leaky feeder, in a grid, so to a reasonable degree of accuracy, the hit point, and hence the lethality of the shot could be judged.
* later, a flash sensor was added when squaddies found out that if they ran out of ammo, hitting the the butt of the weapon with a rock could prolong their time in the "game".