It may go against tradition, but it's true. D: The low down on whats allowed and not allowed in artists ally, directly from the Otakon website:
What we allow, and what we don't, and why:
Drawing licensed characters in a different style and background from the original. (Example: hyper-realistic depictions of Ranma and Akane.)
Allowed. Copyrighted character licenses generally extend only to clear visual likenesses, and these sorts of changes may be considered parody. HOWEVER, it is the artist's responsibility to determine that their work is not infringing on copyrighted work.
Crafting scuptures, jewelry, and hand-stitched stuff with licensed characters. Nearly any sort of handicrafts. (Examples: sculpy Ranma in fight pose. Hand-made p-chan earrings. Hand-embroidered hat with Genma.)
Allowed so long as they're not mass-produced or copies of existing work -- they're unlikely to draw ire of license holders.
Doujinshi and fanzines.
Allowed in limited quantities, especially if you are a contributor. It must be clear that the publication is NOT officially sanctioned or licensed by the copyright holders. However, if you're selling a very large quantity of them, you probably belong in the dealer's room.
Commissions, and sketches done at the con. (Example: Fred Perry sketches the Dirty Pair. Jane Doe draws you in Kenshin's outfit.)
Allowed. These are usually highly personalized and unlikely to compete with any licensed property. There is no intent to deceive.
Handmade dolls of recognizable characters; teddy bears dressed like your favorite character.
Allowed, so long as they're not competing with legit merchandise. Inuyasha plushies are available through licensed vendors; don't sell your own version. But a hand-made rag doll of Inu Yasha? Probably not an issue.
Buttons, pins, hats, or t-shirts bearing official character likenesses.
Not allowed. These would be directly competing with stuff that is licensed and would definitely fall afoul of the owners. Clothing and accessories are usually licensed. (But if you're using characters you already own, or have explicit permission to use, you're fine.)
Photoshopped, traced, or obviously copied characters in recognizable poses but with different backgrounds.
Not allowed. <---- Damn Straight
Any use that is clearly a parody. (Lone Wolf discovers that his "cub" is actually Son Goku)
Mass produced prints of original art depicting licensed characters.
Not allowed. (The original is, but NOT the prints.)
Please don't get mad at me for posting this. I just found out about this, and it would be horrible to see anyone get kicked out of the con. D: