Did you restart the host (I'm not sure, but you might need to restart the host for it to take effect).
And I think (again, I'm not sure) even if you set mode=S2, if all others options are playable with a S1 licence (S1 cars/tracks/ etc. and max guests?/cars on track?) the host will be S1...
Nothing wrong with that, is there, since S2 licence holders will be able to join and race there anyway?
If you enable a S2 car (say the UF1000), the host will be S2-only.