How are airspace violations detected? Are airspace violations (e.g. entry to class B without clearance) based on primary radar and/or Mode C transponder, or something else?

I read that Mode C altitude is based on pressure altitude, i.e., set to 29.92" ... but presumably that's adjusted at the ATC facility based on the current pressure before being used for altitude enforcement.

This begs the question, what would stop one (hypothetically), just winding back the altimeter pressure reading to appear to be at a lower altitude?

So to summarize: How are airspace violations detected:


What data input is used? 
If Mode C reading is used, is it based
on pilot's altimeter? 
Would winding back the altimeter make a
plane report a lower altitude?
The transponder usually uses its own pressure reading, not what is set in the pilot's altimeter. So to prevent cheating as you describe, it is inspected and calibrated every 24 months. Tampering with it would be difficult to do on the fly because you'd have to adjust it based on the current atmospheric conditions and what altitude you want to seem to fly at. But yes, you could, in theory, adjust its readings to broadcast something different.

As far as I'm aware, only major violations are really pursued, or if ATC knows who you are when you commit the violation.