Perhaps make the basic design rules be as simple as possible, with necessary parts easy to obtain (or make). That way, there would be both less and more complicated entries depending on ability and creativity.
Prizes, I guess they would have to be community driven. But if it's a heavy part such as bench gear, shipping can be a big issue, so in that case the contest might be limited geographically. That would also reduce the pool of entries. But I think it's not easy to make a worldwide one.
Judging, what about making that community driven as well? Instead of one (or two, three) person deciding based on what they personally like, entries could be voted on by everyone. As long as it's made in a way that doesn't invite some voting abuse (also less likely to happen if the reward is not something of high monetary value). If that's difficult to avoid, then a few judges could be selected (from anyone that applies to be one and has a good standing on the forum) to vote on the entries themselves.
Just a few thoughts, I can't say for sure if they are good ideas for this particular contest.