As one passes to progressively more elite competitions, the chances of doing well relative to others go way down. I know of children who scored at the 99th percentile in the American Math Competition, and who qualified for the next round (or the round after that) and were among the weakest participants there and felt inferior as a result. So an early boost in self-confidence coming from involvement with competitions can be followed by a drop later on. Some people take losing in stride and don't have this issue, but it's worth being vigilant toward.
Good point. My daughter takes things in stride. She'll find out if she's going to advance to the regional finals tomorrow, but she doesn't really care either way. She wants to get to DC by 8th grade, but doesn't want to crush herself in the process, so she's decided to work gradually. This means learning lots of root words consistently over the next 3 years, which will allow her to spell and know meanings with much less memorizing. I even found a PDF of a Sanskrit roots book on the web. It was published in 1885. Oh, how I love the web.
The semi-finals of the regional spelling bee were, well, interesting. I could feel the competitive stress among some of the parents and DD felt it among the kids. She was at a loss to understand it, and it was a big part of her decision to take the long view: "I'm doing this to have fun and learn stuff, not to get crazy about WINNING!!! If I get to the regional finals this year, that will be a giant step, but I'm happy with a big step to the semi-finals."
Dude has said that the only way to win the game is not to play it. I agree, and I work hard to help my kids understand what this idea means.