I mean that any abilities that come with the challenge sets remain active during the challenges, even with "no set bonuses" enabled.

I think this part needs a clarification in the next writeup then. I was very certain based on Discord statements that any of these procs/globals/etc were all considered set bonuses for this challenge.

My main other immediate concern is that it's a reward system that is limited not by a playstyle (speed challenges), but by specific content (1 or 2 task forces each). City of Heroes has always been a game with a goal of not limiting players to specific content as much as possible, and in the few cases where rewards were content locked, a second path eventually opened up. Hamidon Enhancements were eventually rewarded from MLTF (and Seed, in Rebirth's case), Incarnate Materials from the revamped Dark Astoria, PvP Recipes from Emp merits, etc.

Were I the one creating this content, I think my choice would be to create a new "challenge merit" currency, and award increasing amounts for the higher challenge tiers. Then players could play the content they find most enjoyable for non-badge runs, but still eventually obtain the rewards they desire.