The rules seem too full of holes. Who will be in charge of determining if something is 'melody' or 'chord' progression, as chords can be created in such a way to create melodic harmonies.
It's also confusing how if you play 'x' on the piano, it'd be one instrument, but if you play 'x' on a synth or using a soundfont player (both being capable to be played by one person, using the same keyboard/controller) it becomes more than one.
I think it should either be set for one way or the other, either have 4 instruments, 4 'patches', or 4 notes being played at the same time.
It's a very interesting concept for a competition, but the limitations aren't very clear, and seem to be really subjective, based on whoever is listening to it. I'd like to try this out, but I'd need a little more information / feedback on this.
I guess the real complication is based on the question, "what constitutes as an instrument". As I said before, if a piano or synth playing pads counts as one, then shouldn't a keyboard playing strings, brass, or any other soundfont also count as one?