It is not unheard of (i.e. DEMO is a good example). However, comparing this event to DEMO is like comparing apples and oranges. The visibility of DEMO makes the fee a little less hard to swallow. The visibility of this event is limited primarily to a particular state. They would be better off marketing this as a "conference" or "exhibit" where up to 40 companies can participate and a Top 10 will be selected. To say it is the Top 40 in Georgia though is a little deceiving and false advertising in my opinion. For example, what if I am legitimately selected as one of the top 40 and cannot afford to participate (and assuming I do not qualify for a "scholarship"), does the next company in line take my spot or are only 39 companies exhibiting? If the next company takes my spot, then you really can't say it is the Top 40 in Georgia, it is more like the Top 39 and a company that could afford to pay. Yes, I know it clearly states that I will be charged a fee if selected before I apply, but that in itself destroys the notion of a "Top 40" since obviously the only 40 companies there are going to be ones that can either afford to pay or qualify for a scholarship.
The better option in this case would be to setup something like TechCrunch50 where the top 50 get to present for free, BUT other companies can exhibit for a fee.
The bad part about these events being marketed like as a "Top XXX" competition is that people generally assume, based on the title of the competition, that if you aren't exhibiting then you are not a "Top Company", when in fact you could have been selected but unable to afford the cost of exhibiting.
Sadly when events like this are held and marketed this way I think good companies are often overlooked. My technology may be the next great thing, but will be overlooked because I can't afford the "entry fee" to exhibit and be viewed as a "Top 40" or possibly a "Top 10" in the state.