I would prefer the number of characters to be displayed - but otherwise, this is awesome! Great idea! Facebook uses this too, but in favor of procrastination :(.
You have to be careful, on the other hand, that the quality of the work done doesn't suffer.
How about competitive flashcard making? Competitive spaced repetition? Competitive talk/meeting/event preparation? Competitive thinking-of-things-that-can-be-turned-into-a-competition?
After the rationality minicamp a lot of people wagered that they'll create at least 50 Anki cards in a about month. Everyone could wager any amount of money they wanted. Anyone that creates 50 Anki cards gets their money back and an appropriate share (based on how much they wagered) of the money from people that failed to create enough Anki cards.
Quick report on an anti-akrasia method NMJablonski and I tried out: Competitive Essay Writing. Two (or more) people have something they need to write (but may not particularly want to)- everyone gets on a IM client and every thirty minutes reports how many words they've written so far.
I didn't have an essay to write, but I did have a wiki to update for the D&D campaign I'm running, and I so did that while NMJablonski wrote an essay for school due the next day. I won handily, but that may have been the style of writing I was doing. I found it useful to have the pressure to not waste time chasing rabbit trails (hmm, I ought to name this professor after the guy who discovered the circulation of blood. Why, hello wikipedia!), and he found it useful to have pressure to report a number- instead of staring at the screen wondering what to write, he would just pick something and go with it.
The next step, I think, is to write a program so that, instead of having to manually report progress every 30 minutes, the word count automatically updates for everyone you're competing with. I don't know if that would be distracting or not- I imagine having immediate feedback, instead of delayed feedback, would be superior.