In the Rainbow version, Stella actually fails the exam.
The grand prize for Miss Magix is a lifetime supply of Merlin's Potions and Lotions.
When Stella and the other girls are on the stage, it cuts to the audience a few times. You can clearly see Ms. Faragondain the crowed.
In 2020, Rainbow removed official uploads of the episode (except for the 4Kids version and a compilation including it, both uploaded by WinxClubEnglish) due to racial connotations in the scene where a girl's hair became a thicker Afro.
In the Rainbow version there was no problem with witches entering the contest, it was just that Lucy wasn't pretty enough.