I'm extremely skeptical. I've not used 99designs, but I've used Freelancer and worked for clients with eLance. This seems to basically just be a design-focused clone of those sites.

A little bit of Google-fu brought me to this: http://www.graphicpush.com/99designs-bullshit-20

I believe it. If you care about the way your product looks or the way people use it, you have to bring in an actual designer onto the project at some point, or you get the ~$3.50 product you bought on the Internet.

I guess I agree with your bigger point, as I really cant envision giving designers too much equity based on what should be the iterative and collaborative design process (unless they're in super-early), but I don't think the alternative is to sacrifice on design quality.