Requiring student to participate in online challenges to complete coursework
This sounds like a great idea to me overall, but I can see a few potential issues:


It's possible that one or more of your students might already be a participant, which could raise issues of fairness.  (Other students may complain that he/she got a head start.)
Similarly, the fact that these problems are widely distributed on the web may make it easier to find solutions online.  I haven't looked at the Project Euler solutions online and don't know if they are any good, but it's not hard to find purported solutions.  This could also be a pain for you: if you make it easy to cheat, then you're more likely to have to figure out how to deal with cheaters.