Glenda, we actually published an entire blog. Joseph Anderson, a trial attorney in WS, kept a travel log of his trip across India during/shortly after the great tsunami. He was writing home to his mother. His father had just died and the trip became a great spiritual pilgrimage. Kevin came across the blog and couldn't stop reading it, so he thought it would make a great book, and it did. We published The Light Within: A Travel Log of India about a year later. Granted, we don't have the time to read as many blogs as we did then, but we think the internet is a truly fabulous organism and we use it every way we can.
When writers are considering whether or not they should post work on their blogs, my advice is this: Think like a publisher. Will the exposure help the publisher or hurt the publisher? Are you giving a publisher the opportunity to jump onto something that's getting a lot of attention (or has the potential to get some) or are you asking a publisher to promote work that everyone has already seen? Will a publisher be able to sell your work now that it's been made available online? I think that's the bottom line for most publishers and small presses. It's a tough call. Many folks say don't do it. Some suggest you may "get discovered." You have to realize, though, that it's a rare thing for any writer to find a short cut. It happens, yes, but I think the best thing writers can do is keep at it. Keep writing and submitting your work and learning the ins and outs of the industry. I honestly believe that good work bubbles up to the surface one way or another.
As for contests, I think the safest bet is to read each one's guidelines carefully before submitting work that's been posted on a blog or elsewhere. Generally, I think "unpublished" means not published by another publisher, but it's always best to read guidelines and ask contest administrators for clarification.
Hope this helps. Thanks for asking!
Merry Christmas to everyone at NCWN West~~