Not sure about the prize sponsor part, but couldn't the winner(s) be picked by simple community vote? The contest itself could run within a stated time frame - say about a month to give folks enough time and opportunity (also, members making submissions would need to announce their submission in a specific 'Contest Submissions' thread to make sure their art gets seen and counted) - then the voting period could begin - say about a week - then the votes tallied and the winner(s) announced.
Some of the Member Submission categories might need subcategories. For instance, in Drawings, a subcategory for 'Hand Drawn' and another for 'Computer Generated' might be appropriate.
Also, there could be a 'One Submission Per Member' limit. That would ensure that no one person could flood the contest with a ton of submissions. And, at the same time, it would encourage people to put their very best effort into their entry.
As far as who runs/administers it, I would suggest that it be someone who already spends a lot of time visiting the board and who enjoys looking at lots of member-submitted stuff.
Personally, I wouldn't think we need to fret too much over the 'competitive environment' question. Plenty of communities have friendly competitions like this and no feelings get hurt as long as everyone acts like adults. And the vote system would ensure entries are treated equally and have a fair shot at winning. Assuming people actually
vote, that is.
