That's actually a nice "optional" idea. I don't think all contests should be forced to do this, but I think it would be a nice thing to do for those who choose to do so that they might get more entries.
tbabe, I hear what you're saying, but it wasn't $50 that was lost. It was actually $100. AND it represents many hours in man (and woman) labor from several different designers NONE of whom were compensated for their time.
Contests can be alot of fun if they are run by honest people and if you allow one person to rip people off this way, the next thing you know thieves will realize that contests are a great way to get free design and alot more people will expect free design work.
It doesn't work to only enter contests from people you trust, because there are honest people coming here for the first time all the time. It wouldn't be fair to them to completely exclusde them from holding contests.