Ben: It has to be sampled from one-shot samples. (I.E. You can't have use a soundfont called "Sick Guitar Riffs in Eb maj")
You can use acoustic instruments (I.E. violin), or electric instruments (I.E. electric guitar). You probably don't want to use any analog synthesizer sounds.
You know what, I don't want to limit it to midi. As Trapezoid says, it could sound pretty unrealistic on other people's soundcards. Use anything you want. I'm not looking for high-quality, either. I find that you can have amazing samples and still sound unrealistic. It takes skill to make it sound real.
I want to be able to close my eyes and see that drummer nodding his head with a smile on his face, tapping those drums. I want to see the string bass player walking up the strings with his fingers, slapping them with his other hand. I want to see the pianist with a look of determination, hammering out jazzy voicings with his left hand, while ripping on a killer solo. It's alive.
By the way, I won't be prejudiced against certain genres. I won't give you any more points for making a jazz tune than a polka tune.
The one thing I ask everybody is to keep their entries under or around 1-2 megs. I don't have time to download a ten-minute song. I won't judge on the length of your song, either. (I won't say, "Your song was great, but it was too short")
I'll have you know that I have very little equipment, and most of the stuff I use is free. I don't find that that limits my ability to create realistic music.
Just have fun!