Jim Muncy of Polispace had a talk on the politics of organizations like NASA and how they affect the entrepreneurial space community. I'll just summarize the prize-related aspects of this talk.
Last year Jim recommended not confronting NASA about their in-house development plans for Ares and Orion vehicles, since they were going to be supporting the entrepreneurial community with COTS and prizes. Now these progams look uncertain as Ares and Orion are using up much of the rest of NASA's budget, including these promising programs. At first NASA was for the prize idea. However, Congress didn't know which district the prize money will be spent in, or when it will be spent, so they have little interest in prizes. Therefore, Congress is in part at fault. Prizes don't make sense to Congress and their interests, since their job is politics. They make some decisions on substance, but many on politics. Since they don't know who will win a prize, they don't know who to "invite to their fundraiser". Jim doesn't think prizes are the "solution to all problems", but they are a useful tool. According to Jim NASA never explained to Congress about the multiple contestants in multiple districts, and the media help. Therefore Congress is not funding Centennial Challenges, and now NASA has stopped asking for Centennial Challenges money. (Ray's note: For this year they are asking for $4 million, but given the lack of any funding for a couple years, and the fact that $4 million is much less than the original concept of the challenges, you could say that they have come pretty close to what Jim said). On COTS, it seems that NASA would rather go with ISS partners than buy from U.S. private companies. Ares and Orion are eating the rest of NASA's budget (Ray's note: including prizes and numerous other programs) to meet the arbitrary goal of ISS gap reduction. However, if they really wanted to reduce the U.S. ISS human transportation gap so much why didn't they use $2-5 billion to set up prizes to do it? This goes back to the Congressional districts.
Please see the following links for more information about this talk, including many parts I didn't cover because I focused on prizes. (The rest of the talk is also interesting, but I want to focus on prizes because I can't possibly effectively cover a broader subject with the time I have available for this hobby).