Mmm...It's been a while since I've posted, but I came up with another suggestion. How about characters could take the obvious route and duke it out if they so chose, and then they could fight against other player created characters, or the monsters that Squeak suggested.
Also, they could take the back routes and take/make high stakes gambles on their chosen warriors or monsters. This would open routes to all sorts of sabotage, e.g. sneaking into the arena works to hamstring the greatest threat, and getting out in such a manner that does not jeopardize the legality of their bet. Therefore, PC's could get hired as guards to defend these warriors, hired as hunters to bring exotic monsters from the lands of sin, etc.