Formating short story for a contest?

Depends on their submission guidelines. Check those first.

If they don't specify, then I would go with standard manuscript formatting rules, which in the example you gave, would be the # sign for a scene break (from what I've read).

Yeah, what he said. Find and follow submission guidelines, if any. Lacking those specifics, I tend to select the most conservative old-school format: Courier 12, one-inch margins all around, underline my italics, # for a section break--producing something that might have come out of a 1948 typewriter, except that none of the e's is closed with clotted ink.

Maryn, who's won a couple contests with this method (yeah, it was the format!)

Ditto on aston's and Maryn's posts: first find out if the guidelines specify and follow those if there is.

If not, follow a more-or-less standard format. There are variations, but this one would almost certainly be acceptable if nothing is specified (except some contests do not want your name on any place other than the cover letter):
http://www.shunn.net/format/story.html