You can bake all static materials into textures, while "dynamic" materials (reflective, transparent, etc.) should be faked using cubemaps or matcaps. Try surfing through SDK scenes, you'll catch how it's done
Also check the documantation, it should help too x)
About the entry - please read the rules and specifications! At the bottom of the main Contest page you'll find a link to entries thread. Also check the previous contests' entries, like that one: that is a good example of the entry format.