Interesting indeed... I didn't think selling a cover would be so much of a legal headache. But I realise now that having a "donate" button separate from the album is much more suitable to the situation, as I never really wanted to sell the album per se; only accept donations in exchange for my time.
Just listened to the nsf of my entry with VirtuaNSF.
Elec mans main lead is messed up (give it a listen), and at the very last frame there's a slide fuckup on the lead, but I have no idea why =/ It seems like it's because theres both a 200 and a Q effect on the same note, but I can't verify that right now...
That article explicitly talks about acquiring a license for selling cover songs, but what it doesn't mention is that the process is exactly the same even if you want to give away the covers for free. i.e. royalties must be paid regardless of whether you're charging a little or a lot or nothing.
There is a rather obvious problem is that without charging for your cover, it's difficult to have the means to pay (or even track) the required royalties, but this doesn't mean releasing it for free absolves you of any legal responsibilities involved in redistributing the work.
This is not to mention that aside from the whole cover issue there is no provision of license in the rules of this contest for submissions. Accepting the display of entries as they are now can be taken as implied, but really nothing more than that is granted by submitting; we all still have a copyright on our submissions. Obviously this can be cleared up by asking each of us for permission, but it could be a lot easier if you explicitly made release under a creative commons attribution license. (Though the funny thing is, cover works can't be put under a creative commons license, since they're all derivative of works that are not licensed that way already.) This is why BotB and 8bc and many other sites that accept submissions from users usually require a CC license, so they can redistribute the work beyond what is being implicitly agreed upon without fear of repercussion. (This is also part of the reason that BotB doesn't normally allow covers.)
Anyhow, you are asking, and that is an okay way to do it; I'm just suggesting in the future you may wish to require a CC license for all submissions; possibly this one: attribution/remixable/non-commercial, or if you're not afraid it might scare away entries attribution/remixable/commercial (which allows anybody to sell the work, similar to GPL).
Again, this licensing isn't compatible with cover contests anyway, but it's something to consider for the originals compos if you want to be able to publish this stuff elsewhere. You might come up with an explicit non-CC agreement about redistribution for the cover compos.
As I said elsewhere, I'm fine with any of my entries in any demo compo being redistributed for free in any form as long as attribution is given to me (and the original author in the case of covers). I will be redistributing my own freely on my website and YouTube. I'm not sure how I'd feel about commercial distribution, but that can be discussed if it comes up.
I also think it is unlikely that hosting these covers will cause any real legal problems. In my (anecdotal) experience covers distributed like this are ignored, rarely some are given take down notice, very rarely does anyone get sued for it (unless they don't take it down after notice). However, you should know that by distributing it you are agreeing to take that risk.
I had a go at an album cover based on the koumajou densetsu title screen. Since it's all a bunch of covers in the first place, why not have the album cover be a "cover" as well?
EDIT: oh and the MJ sprite was a piece of advise from an unrelated irc channel. They didn't even know there was an MJ cover on it in the first place, so I just had to leave it in!
I have never heard about needing permission to make covers. Making money off of it on the other hand, is another story. Oh well, maybe the laws are different over here.
