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I would bet with castar, a sort of Gondorian coin. They're mentioned briefly in Peoples of Middle-earth, on page 45.
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You can bet with banana peels if you want.
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Can players bet? Or is that akin to proffesional sports coaches betting?
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Given that you aren't allowed to vote for yourselves, it seems fairly unlikely that you would be able to fix the race. (I'm not accepting lays- that is, bets that a certain team will lose, and I trust that you're actually trying to win.) After all, we can vote for the people we bet on, you can do the same. Unless you bet on yourself, in which case, never mind.