Obviously, who is actually fighting would have to be determined, but there are some possibilities. As to the issue of waiting for the battle to end, killing the stragglers, and taking all the loot, why wouldn't one side retreat after it becomes clear they're going to lose? This would at least reduce the massive amount of loot coming out of these encounters.
To add more depth, if you choose to enter an encounter and help one side to win, your reputation with that group would increase, and they'd leave some of the loot for you, but not all of it. Something like 1 weapon, 20% of available ammo for that weapon, and anything the winning side wouldn't want that's left over (f.e. VC probably wouldn't be picking up combat knives, rocks, bb guns, and things like that. Or they could just leave you a random 10-30% of the items.