Some kinds of cheating can be mitigated that way, but it can't really stop cheats which just play the game more optimally than the user is able to, using the same inputs and outputs that a legit player would use. Aim assistance in shooters, automatic parries in fighting games, economy-breaking levels of automation in MMOs, and so on.
There's also practical limits to how much data you can filter out in complex 3D games, both due to performance constraints, and because culling information too perfectly can cause things to pop into existence too late under real-world network latency. The effectiveness of ESP cheats can be reduced, but not eliminated in practice.
I think anything that relies on reflex alone is flawed design. You can design around this, by for example in Dota2 it doesen't matter how fast you click an entity, because the turnrate of your character is limited, so a person clicking reasonably fast and a bot clicking in 0.01ms both arrive there at the same time. Precision also doesn't matter, because a player can click the icon of the enemy instead of trying to match the pixels on screen. MMO scripts that use information already given by the game just seem like the MMO should invest in UX instead of trying to ban people for using the tools the game already gives them.
You could probably detect those kinds of cheats heuristically on the server. There are limits to human ability. It’ll take more time to catch the cheaters, but I’m sure it’s possible.
This player is posting 30 auctions per second. Bot.
This player is turning at a rate of 500 radians per second to make perfect headshots. Bot.