Sounds like a great contest. Restricted to fee edition makes sense given the audience and awards. Plus like Wink said you can always pass on the license if you don't need it.
I get the point about plugins maybe skewing it a little. But the great plugin and behavior list is available for all to use. And if someone creates a plugin in the time frame of the competition to help circumvent a limitation and makes a winning game also in the same time. Well Congrats that kind of effort deserves a prize. I also hope they release the plugin afterward.
An Honor system for if it runs in free edition is fine. I mean nothing is stopping someone from posting the their final .capx. Heck could even garner some positive opinion for an entry. As a good faith gesture.
I'd like to say I'll give it a go, if nothing else I now know of another game design forum to lurk in and learn from.