I don't know, it depends on whether it's a general challenge or a fic exchange! I always feel it's a little unfair to exchange fic for art directly, unless writers, like, specifically say they'd be happy to receive art or something. So I'd say illustrating stories would be cool in that case, possibly doing author/artist collaborations before the stories are posted? (Illustrating after the deadline has passed kinda takes away the excitement, I think.)
On the other hand, if it's a general challenge or even assigned characters, I'd be happy to just run with it by myself, if you do decide you want to let the artists play.