The main issue is how it will be managed.. I don't want any inhouse system from myself or any member.. I'd want to use a hosted solution from a vendor that offers merchandise products/services.. any commissions/cut can go into contest prizes.
Maybe we should start with compiling a list of companies that offer this service so I can review which would be best.
Merchandise Vendors:
http://www.cafepress.com
Start list now.