This is a great way to get your community's creative juices flowing, not to mention your own. As a lover of story, I like to practice what I preach and write a spooky story or two of my own to inspire the kids. Two of my favorites are called Old William, which is about an old man who is haunted by his mother's ghost and Brian's Hike, which is about a hiker who encounters a group of gospel ghosts at the top of a mountain.
Here is the basic recipe for how I run the contest. I send out notices to the local school libraries and ask the librarians to promote the contest, which is usually how we get the bulk of our entries. I also put it up on our library website and send a press release to the local paper. I try to keep it simple asking the children K-12 to write an original spooky story with a beginning, a middle, and an end. Everyone gets a certificate of participation because I feel if the kids are willing to write outside of school they should be rewarded. Everyone who enters also gets a gift certificate to my favorite ice cream stand Sully's. Prizes are usually books or Halloween trinkets. You can break down the categories however you like. This year I had a Kindergarten group, then grades 1-2, 3-4, and middle school category which is 5, 6, 7,and 8th grade. I usually don't do the judging myself. In the past I have had a Teen Librarian, a Newspaper Editor and a High School Teacher as judges. This year for the Top Prize winner I tried something new, since she was also my top winner in 2006, I took both of her stories and had them published at Lulu.com and for ~$7 per copy. Please let me know if you run a spooky story contest your own, I'd love to hear how it went .