Actually, I believe that IF Comp do still prohibit beta-testers from judging: the rule change was to allow participant of the competition to also vote on games (which they were not previously), but they're still not allowed to vote on the games they tested. But that's by the by. Ours is a different competition, but we have the same rule.
The intent here is really to have a level playing field by having everyone exposed to the games at around the same time. A tester might have had months to get acquainted with a game and to explore all its ins and outs; that's likely to affect the way they judge it (consciously or not) compared to someone who hasn't had that sort of previous exposure. I don't think we should worry too much about disincentivizing people to get their games tested or reducing the pool of judges - the IF (and wider gaming) community is, I think, engaged and buoyant enough to support the competition with that rule in place.
As for the honesty system - indeed, that's what it is. We can't force people to adhere to the rules or prove it if they're not, but we give the good people who have joined this jam the benefit of the doubt and assume that they'll follow them, as we expect they will.
Needless to say, if this does prove to be a huge problem then we'll review and revise for next year's competition.