We have some guidelines to determine whether an item would be acceptable or not (and these guidelines also depend on how hard the quest is). Since those guidelines are not written anywhere (we more or less compare new items with what we already have for similar quests), it might be hard for you to know whether or not your quest reward suggestion is balanced or too powerful.
I took a look at some entries for the contest and saw quest rewards that are way too powerful for the magic level we have in the mud. Bottom line is, do not worry too much about the power of your quest reward in your submission: Mystra will check it before it is coded.
Also, think about different kinds of rewards. Every damsel-in-distress / recently-robbed-merchant / component-searching-wizard / ... does not have a nifty magical item lying under a thick cover of dust in his/her attic (strangely enough, most people seem to hoard magic items, to not use them, and only think about then when they have an adventurer to reward). Some might give only coins, or gems, or a fine sculpture. Some might simply give a 'thank you' or free food, or a free room in an inn. Every quest does not have to be associated with a magic reward. To sum what I mean: it might be better to try and think of an original reward instead of bothering about the technical aspects of a magical reward.
