Glenn,
I've already pointed out the particular text of your contest that calls it into question regarding legalities. I've also said you should consult someone in the legal profession regarding the wording changes you should make. As it stands now the words "including all source files and textures needed to create the character, hair, and clothing. The winning 3d characters, as well as source and texture files become the property of Humanity Online LLC and the artist conveys all rights to Humanity Online LLC;" are where you're tripping up. You can't claim ownership of "All Source Files". You can claim ownership of "All Source Files Created by the Contestant" but not the souce files they used that belong to someone else. If that isn't clear enough for you then I'm done trying to explain it!
It is a miracle that curiosity survives formal education. - Albert Einstein