Interesting thread. My guild doesn't do challenges, or at least not in the last 3 years.
There should be a few guidelines to the challenge - use particular fabrics, techniques, etc. And, as you have pointed out, clarify whether it's to be your own design or from a pattern.
Personally, if I had to design something, I probably wouldn't participate as I just don't have that gift. If you do, though, I say go for it - you'll be expanding your talents and soon will not only have a one of a kind, it'll be a winning one of a kind!