I like 99designs - I have used them on several projects however, I don't have a crappy budget - I have a good one. I am hard on the designers, but fair, I give great feedback and have top designers who have done other work for me as well.
What I do is tell my clients to guarantee they will purchase a design, and from that I get the better designers and never ask for a refund.
Yes it's crowd sourcing, and yes it's competition, but these guys know that from day one. I have blind competitions so the work is not copied, and have a very detailed brief and expectations and give feedback to the designers as soon as I can.
This has given me great results - Having once employed designers, and although I do some design work, my strength is implementation, research, upgrading, migrating ,server maintenance and fixing up F-ups done by others.
I'm up front with my clients about using 99designs. I charge between 300 > 500 to manage these projects and the scope of design you get is more than what I could ever expect of one designer.
It does however, depend upon the value of the project - I guess if I were Myer I might not go there, but for a client who has a small budget, this place can be an excellent stepping stone for them to break out of the 'templated' or old look.
Furthermore, some of these people are from countries where the US dollar is worth something to them, so when I have a design quote for 2,000.00 and this person is from Belarus or some Asian country, it has real value for them, and some of these guys are simply outstanding and I would never have had the pleasure of dealing with them, without a place like 99designs.
I'm pretty transparent with my clients - I find that most of the time it stops arguments or misinterpretation.
That's just my two cents on this interesting topic.
Nina