I'll reiterate: Anything goes as long as it is acoustic and a new version of an already written track. Absolutely NOTHING is allowed to be electronic for this other than your recording equipment, No VSTi, no effects, no synthesizers, no electric guitar, etc, etc, etc.
@Akira: I am doing a folk cover of Random's Spontaneous Devotion. From what I gathered, he was asking if that sort of thing is allowed. It should absolutely NOT be a straight cover because, as I said in the OP, this is about the creativity of the arrangement more than anything else.