This might be a bit of a bizarre challenge if this is the case, but would the rule "make all your sound effects by saying stuff into a mic." apply to background music as well, or is it just up to the creator if they want background music out of their own voices and sounds?

It's up to the creator! I added the challenges to just be fun little side quests and stuff you could also do during the jam, so feel free to interpret them your own way! :D