I recently entered the "O is for Originality, C is for Creativity" contest.
I was attracted by the theme of the contest: they required to write a canon O/S, from the point of view of a character of the original saga, but using 25 items (objects, verbs, phrases...) provided by the contest committee.
It's been a very interesting challenge and...surprise... I won the contest!
(Second surprise... mine was the only entry, but this is another story... :) )
If you want to read the story, here it is:
http://www.fanfiction.net/s/6921947/1/TheCliff

I think that a prompt, such as an image or a phrase, can be encouraging because sometimes an (aspiring) author needs not only a launching ramp for his/her creativity, but also a boundary to mark a territory; in this case, the "rules" of a contest provide exactly this "boundary".
Rules could be interesting also because they offer the opportunity to...break them.
For example, I entered another contest, "Behind the lyrics"; I was given a song from the Sixties (Crystals, He's a rebel), while the o/s I submitted deals with Carlisle in 1798... different ways to be a rebel, in different times... If you want to check the story, http://www.fanfiction.net/s/6872281/1/The_Moon_over_Volterra.
What is your experience about contests and, in general, about "writing with rules/ prompt"?
- Raum