You're exactly right. The race organizers shouldn't have specified detailed rules that teams could count on for development because the overall goal here is to have a completely autonomous vehicle. There's no chance that DARPA is doing this to prove that the technology can actually work first, then make it more robust in order to implement it. What they're probably going to do is take the winning car and ship it over to Iraq and have it start driving around cities right after the contest is over. That's definitely their plan, I read about it on a website somewhere. Definitely.
OR... you're an idiot.
They used the Grand Challenge (driving autonomously without worrying about man-made hazards) as the first stepping stone. Then they use the Urban Challenge (driving autonomously with some pre-defined, but not completely real hazards) to advance the technology another step. Then maybe in another year or two they have an even bigger project. Or maybe they take the technology as it is and continue to develop it in-house until it can drive through tunnels and not run through a railroad crossing gate.