There's another point to be made about prize money as well - especially in areas that aren't completely saturated with competitions, but also in places like California, you will have competitors come from quite far distances, perhaps driving a few hours or paying $50+ for airfare. I don't think that anyone who's going to go more than a few dozen miles to a competition will be dissuaded by a small entrance fee.
Even if there's no entrance fee or prize money for a competition (or for the winners of some events), I think it would help cubing as a sport if we standardized the prizes a bit more. As hdskull mentioned, and as I think I've mentioned to some of my friends before, it would be great if we could at the very least ensure that all competitions have official-looking certificates, possibly in addition to whatever normal prizes the organizers want to give out (bags of candy, for instance). Perhaps someone could make a nice-looking certificate with the WCA logo that could be printed onto cardstock and then printed out before competitions.
It would also be helpful to have the competitions be more centralized, financially. What I mean is that competitions with a surplus could return some of the extra money to the WCA, and other competitions which are having trouble raising the money for prizes, rent, or printing could be given a small amount of financial help from the WCA. In my opinion it will only aid the legitimacy of speedcubing if we find a better way to deal with monetary requirements. Asking cubing clubs to fundraise or contribute their own money towards setting up competitions is fine, but the WCA as it is now hands out a lot of orders but doesn't give that much to small competitions, and I think it would help the expansion of the sport if we had some kind of competition treasurer.