Activision is looking for fresh talent and ideas...but mostly ideas.
-The "Right of First Refusal" business is simply there to ensure that Activision, and only Activision gets first dibs on property that technically isn't theirs to begin with (arguably as a token of good faith from the indie-developer to the "generous" Activision for hosting this competition and getting them recognition in the first place. So it is not entirely unfair).
Most of these Indie-devs probably cannot afford full-on legal service; but they need it. Badly.
Major kudos to Rosen for essentially providing that. Or at least a primer for it.
-As for the "you cannot enter anything that has been publicized before" bit..
There are many points to be made here, but I choose this one: No matter who wins this contest, Activision wants the power of marketing hype.
If a game already has gameplay elements published (even as a demo) it diminishes the hype considerably, because the gameplay is no longer an unknown.
Take Deus Ex: Human Revolution for example. Not one iota of actual gameplay has been published yet. The smart publisher keeps the gameplay trailer tucked away until the 11th hour, and shows only the most flashy bits to plant the notion of the entire game being that awesome (it often is not). Releasing information too soon impacts game sales (unless the gameplay is really GOOD. See Starcraft 2).
You want to force your consumers into buying into that hype so that they don't think the decision over; you don't want them to criticize your product. So don't give them anything to actually criticize, but keep them interested by announcing the premise of the game.
Remember: It's better to have a good EXECUTION of a game than to have a good PREMISE.
I can name a dozen games off the top of my head that had an awesome premise but awful execution. But two of those sold very well entirely because of hype.
All of that text boils down to this: Activision simply wants insurance against a bad investment. If they invest into the contest winner's game, they want to make sure that they can still trick people into buying it through better marketing even if it turns out to be a flop.