I think there is no relation between the caste system and Miss Nepal competition. However, i can't deny that Newari, Bhoteni, gurung/magar seni have most good looking body ;) no offense to chettri & bahun (while I am one of those).
The problem is with the organization committee, their marketing/media strategy and their outreach to other parts of Nepal than Kathmandu. Economic factor, education and attitude of people towards beauty contest also affect the participation.
I personally do not like the concept of beauty contest. The outcome of these sort of beauty contest only serves as pretty face & media. I guess the winners automatically become ambassador to few non-profits and become active until they get to participate/travel in Miss World contest. I don't see how that helps in upliftment of under-represented & underprivileged class of women in Nepal. I see Hidden Treasure Miss Nepal as an organization that objectifies women and represent only certain class of people.