When I think of a "Challenge Quilt," the finished project and interpretation is up to the participant. They can use applique, piecing, embroidery, embellishments or whatever they want.
Here are a couple challenges that I've participated in...
We were given a bag with 2 coordinating fabrics and challenged to use the two fabrics, and at least 24 4-patches.
Everyone got a magazine (wide variety), and someone drew out a page number. And we had to make a quilt representing that page in the book. Some pages just had words, while others had pictures.
We were given a choice of fine art masterpieces, and challenged to make a quilt that represented that art piece.
You could just have the participants create a green quilt. Do you remember making color poetry in school? Have them show what green means to them. example:
"Yellow's the color of a new baby chick.
A spark that flies as the switch goes click.
The big, bright sun And the feeling inside.
The ripening of grain on the country side."