From the source
. To wit: "10. Acceptable Methods of Attaining Orbit
Any method of attaining orbit is acceptable, provided it does not breach the rules or spirit of the N-Prize Challenge. Examples might include (but are by no means limited to) conventional rockets; balloon-launched rockets (rockoons); gun-launched projectiles; or combinations of these or other methods. All entrants are strongly advised to contact the organisers at the outset to ensure that their proposal falls within the rules and spirit of the N-Prize Challenge."
Gutemine reported he's already done that, and that they confirmed his concept meets their rules with respect to their definition of the term "orbit."
ETA: If you find something in the rules which specifically disqualifies his idea, I'm all ears. The rules appear, however, to encourage out of the box thinking.