Note that this is not a particular flaw of Elo ratings
Correct, however the matching system used by this contest (and many others) can magnify the effect. Cheating straight round-robin can work, but it can be done easier with this matching system because the way it pigeon-holes bots to play against bots of similar ranking.
Head-to-head competition emphasizes anticipation, adaptation, and trickery, in addition to pure optimization.
Therein lies the catch: if a bot is encouraged to use trickery, what are the bounds of trickery it is allowed to use? The truth is that cheating is called winning when it isn't detected.
I would much prefer the contest organizers take strides to detect and discourage collusion and ranking manipulation
This could not be done perfectly, but a huge step forward would be to validate accounts by requiring credit card information. As it stands now there is no way to trust the identities of the players; the claims by the competition runners are hot air, there is no way to detect a smart cheater.