Hi Core. The event is targeted for summer or fall 2012. Each division of the contest (performing arts, visual arts, recordings) will be pretty much separate from the others.
We have a performing arts venue lined up, but our first choice for visual arts venue fell through, so we're readjusting. Because of this, we're holding off on making public announcements until the details are finalized. (I announced Jon's logo selection now only because I'm currently building the website and wanted to recognize him for his work in advance of using it).
That said, I'd be happy to answer your questions:
All entrants will need to be sponsored by an invited group, and the list for this year is already fairly finalized (Couchfire is on the proposed list, by the way). The reason for this is that the primary purpose of the competition is to promote existing central-city community based arts' organizations. The rationale is that groups like that represent a significant, under-appreciated and underutilized force for good. (There's a substantial amount of philosophical reasoning behind all the details of the contest, but I won't bore you with it here.)
Formal invitations will go out once the venue is finalized. It would be wonderful if new groups were inspired to start by the competition, but I very surprised if that happened in this, our inaugural year. Also, a group would need a bit of a track record before it would be included.