I've been trying to think of something clever to say to this since you posted (and by now it should be clear I'm failing ;-) ).
To me it's important that you, as a mod, are comfortable with the schedule. You do us all a favour by running this, poking nicely, and being over-all great. So if monthly is more comfortable for you, then why not? I don't know if it will make much of a difference in terms of participation, but it might at least be worth a try until you have more time (at which point you could evaluate the result).
As for the challenges, I have no experience with this. But it might be fun to submit more icons if we had more time. Requirements would be challenging, too, and might be fun to do as well. I'm game for trying it out :-)