It does not matter where the fabric comes from. This year I entered my quilts in 2 different places. Some of the fabs came from Wal-Mart, Joanns, Hancocks, and regular quilt shops. Not one of the judges ask where the fabs come from. CKCOWL is correct....they are supposed to judge on your workmanship, balance of colors/how well it works together, quality of hand stitches on bindings, either hand quilted or machine quilted and the number of starts and stops sometimes is judged also.
Please don't be afraid to enter judged contests. It is really interesting to hear the judges comments if you are able to. ;) Good luck if you are planning on entering. ;)