That is a common type of hackathon, and usually the more enjoyable. Going from zero to something cool is fine, but joining up with an open source project for a few days and fixing problems and adding features can be a lot more rewarding, and a lot more useful.
I agree, I don't like to bring in existing code. Once I saw a friend of mine do (very obviously), still the jury was so impressed that they awarded him $25k in advertising for his bootstrapped startup. That moment I wished I had done the same thing:)
Most of those I attend are aimed at competing over what you can create in x hours. If you've spent a week beforehand building it to present then it is essentially cheating. So yes, it is really a game.