I don't much about this other than what I read on the site, but I see no reason why a chumby widget would not qualify - we run Flash Lite and the widgets have been published to be compatible with it. I don't see any requirement that the submission run on a mobile handset.
Looking at this page it seems to be saying that you don't actually submit the application itself, but rather screenshots and a PowerPoint or video showing your application in action.
cbreeze - I really think you should submit Chumbyland for consideration, if for no other reason than to see what happens.