Well, I'm sticking with the first rule (assuming that they won't grosly over-change it), cursor keys and space.
For me, it covers everything.
My original plan is to make a platformer with lot's of customizable things for the player (not too much like LBP, but similar) and have puzzles for the player to solve and such. But that's just my original one, seeing as it's 9:56 PM (at the time when I posted this) in Australia and it's new years eve (stay up 'till 12 then do some work) I'll probably go jot down some alternate ideas after Midnight.
Also, a little thing that came to my mind instantly, when I was thinking of the lack of controls, was a pause button and how to do it. The first thing that popped into my head was a timer. So when space is held for atleast five seconds it goes to the pause screen and then it has options, resume, main menu etc. etc. and you use space to choose them.
I think I'll regret posting that idea for others, just thought a few people might want to do something similar, although hopfully the people that do use it have enough common sense to not do exactly the same thing.
Are there any other sorts of games that work particularly well with the contest specifications?
In my opinion, what can't you make?
Top down shooters are possible, platformers, iso, hell you could even make an FPS! Although all of those would be quite limited control-wise.
I'm interested in what Mr. Chubigans comes up with...
I wish everybody the best of luck.
~ Mr. Munchkin