I think multiple smaller prizes is nicer as it increases the odds of getting something for the effort. Random winner selection is nicer, too, since someone seeing a nice entry by someone else might not make an entry thinking theirs won't be better; with a random drawing, it levels the field... it also can allow for uninspired entries for the sake of an entry, but I don't think we've seen much of that at all here. Carefully crafting the rules can also make that more difficult.
Problem with smaller prizes is which to make available? I like the Festool Dollars idea since I wouldn't want to win a TS-55 panther blade when I don't have a TS-55 or an FS-800 guide rail when I already have one.
Something like tee shirts for all entrants can greatly increase participation, I think. In that way, nobody loses and certainly the advertising of the shirts on job sites or -ahem- videos can't be bad. Maybe even a custom shirt à la CafePress that calls out the contest.