The point is that Upshot wasn't granted an 'exemption' in any sense of the word.
Salesforce had already decided that they were going to win, and now they are being forced to justify that decision in the context of the rules.
Going forward, there is every reason to assume that future hackathons/competitions run by salesforce will be likewise pointless to participate in, unless you have been given the nod by Salesforce.
They haven't just set a bad precedent, they have totally trashed their credibility.
I am taking bets that the next time they run a hackathon there will be (anonymous) stories of Salesforce leaning on their 'partners' to ensure they get a sufficient number of entries.
They should: If you know what you're building, and the prize is enough motivation, of course you should do everything you possibly can in advance, and any rules that tried to prohibit that would essentially be crippling only the naively honest.
Even if there were keystroke and screen loggers and you had to "show your work", a prepared team would have gone through the process multiple times, completely refining their work to the point of rote re-implementation of version 10 of a proven out implementation.
This may sound cynical, but it is truthful. Which is exactly why most such competitions simply announce the goal and an end date in the future, and people grind as they see fit.
What is this referring to? Has this ever actually occurred?
If you tell people there is a million dollar prize at stake (and to add to the financial stakes, charge hundreds per contestant), and details of the problem they will be solving, 100% of your contestants will try to solve as much of the problem as they can in advance (while, most likely, declaring it a crime that anyone else did so).
Anyone who claims otherwise is the sort of person you should protect your wallet around.
It is impossible to guard against this.