Honestly, the thought of having to remove all the mods and waiting for updated ones every time there was a expansion never really appealed to me. And for me, using cheats is a sure fire way for me to become bored with a game extremely quickly. In fact, the only reasons I use cheats at all is to create building effects that can't be created otherwise (using moveObjects) or for the purposes of telling a story. Personally, I think that kicking the cheats habit will heighten the enjoyment and satisfaction you get out of general game play and challenges. There is nothing quite like plopping a sim down on a 60x60 lot with nothing more than $1,800 to their name, and watching as a house grows over time due to his or her efforts.
I was one of the early victims of the "evil doll," and I can't even begin to describe the havoc that thing caused. As a result, I avoid all custom content unless it's purchased directly from the sims store. I don't even download from the Exchange.
And as far as mods go, the only ones that are banned for challenges are the ones that alter game play somehow. So if you have something that does nothing more than counteract a bug, I believe that's legal for challenges.