Sadly, as noted in the comments, the rules won't allow Second Life entries this year. Bummer, but they're going to change the rules for next year.
Just saw that Interservice/Industry Training, Simulation and Education Conference (I/ITSEC) conference is hosting a serious game contest. Rules are here -- most importantly, that you have to have a completed entry by July 31st -- and it is clear the SL residents could dominate this contest. Given the US$2000 prizes they're going to hand out, it might be worth your time. The only problem that I can see is that the submission requirements are clearly not targetted towards SL/online worlds, but I'm going to email them and seek clarification. I'll post here what I learn.