I don't have a problem with the idea of scriptlance (assuming I'm understanding the site correctly). The internet drastically increases competition and that'll certainly drive prices down, but that's not inherently bad. I don't think there's anything magical about the traditional going rate for artwork, and having a market that caters to those with lower budgets is fine. The bids I'm seeing are pretty low, but they look like they're translating into something that you could actually live on. (Rough guesstimate is that they turn out to be around $10-15/hour for the lower end projects, as opposed to the $2-3/hour that contest labor gives you)

From the client perspective, there may be some quality dropoff to consider, but it looks like the site at least gives you some tools to analyze that. I notice a few of the jobs have a bunch of reasonable bids around the client's budget, and then a lowball bid. If those lowball bids tend towards lower quality, you still have a range of choices and might deliberately choose something more expensive if you think it's worth it.

I suspect the actual problem is a lack of a good "middle tier" option. There are definite benefits to having a long term relationship with an artist who understands your vision and can competently execute it. Websites that divide up labor into little outsource chunks will have a harder time accomplishing that. I know that from the client perspective, finding an artist who is worth having that relationship can be frustrating. The artists who are likely to be worthwhile also tend to command expensive rates, so if you miss you'll be wasting a lot of time and money. I don't know what the solution there is but I do think it's a problem.

As for the X-Prize: I see a categorical difference between contest-labor and actual contests. The X-Prize gives you actual prestige and publicity. In a real contest, even being runner-up can result in publicity that can benefit you and lead to new employment. They also usually provide rewards that are greater than normal payment would be. (I don't know how valuable the labor required for winning the X-Prize is, but $10 million sounds like a lot of money to me).

Low budget contest-labor, on the other hand, doesn't give you any special publicity, and can actually harm your prestige depending on the circumstances, since it has a stigma among professional artists and sends a message to other potential employers that you're willing to work for scraps. An important skill for young artists to develop is to communicate the value of their work so that employers don't take advantage of them (often unintentionally), leading to a cycle of frustration and a day job at WalMart. Contest labor sends the opposite message.