* As currently structured, it's obviously a problem in game theory, behavioral economics, and group collaboration, not technology. Contestants will register as individuals, not organizations -- of course, people will collude and collaborate, but they'll have to determine not only mechanisms for intaking, validating, filtering, and crediting distributed reports (your basic crowdsourcing problems), but they'll also have to figure out the basis for distributing the prize. (And $40,000 is in the realm of "real money.")
Presumably, a large enough group to win will be in it for the bragging rights (I'm sure everyone is thinking "Anonymous"), and simply donate the money to charity, to avoid all those messy distribution issues.
However, since the registrant has to be an individual, the winner of record will still get stuck with the tax on the $40K prize, even if they donate it all to charity. Something to consider.
* The rules are only two pages right now. I'd be really surprised if the rules (which "may be modified at any time without notice") don't iterate and grow dramatically in between now and December.
Of particular concern is the potential griefing issue -- anyone with any modicum of deviousness has already said, "Hey, we should just fly a bunch of fake weather balloons to fuck up everyone else."
(The rules state that official balloons will be accompanied by DARPA representatives -- we're going to need some authentication method beyond "Some asshole wearing a navy blue polo shirt holding a clipboard." It'll have to be communicated far enough ahead of time to propagate, but not so far in advance to be easily spoofed.)
Griefing goes to the idea of motivation: You might not be able to mobilize and organize an credible nationwide team to win, but I can easily see groups of griefers -- call them "cells" -- popping up on game day:
Looking at costs, an 8-foot diameter balloon holds about 270 cubic feet of helium; with cost of balloon and tank rental, that's a few hundred bucks, which is easily spread across a few friends.
* Hopefully, no one will try shooting down balloons. That would be a bit much (as well as a violation of the contest rules). The rules cover changed locations, but I don't yet see anything about accidental or manmade balloon failure post-launch.
As to other potential hurdles (balloons in really out-of-the-way -- but still road accessible -- locations, I don't find that as interesting as the challenge of dealing with griefers, especially highly-motivated ones bent on undermining the game.
Of course, since no one ever accused DARPA of being dumb, it really depends on how they implement the Web site reporting mechanism (will it provide feedback when you submit a location, etc.)
Watch the skies.