I want to make an app that is free to play but you would be able to purchase "credits" through apples in app purchase. When you use these "credits" and if you successfully complete a task you will then be able to get a prize mailed to you. Is this allowed by apple?
No, you cannot use in app purchase for anything that is a physical item.
Apple's iPhone Developer Programming License Agreement states pretty explicitly that credits aren't allowed. I've never submitted an App with credits, so I don't have direct experience, but here's a direct quote from the most recent Agreement:
2.2 You may not enable end users to purchase Currency of any kind through the In App Purchase API, including but not limited to any Currency for exchange, gifting, redemption, transfer, trading or use in purchasing or obtaining anything within or outside of Your Application. “Currency” means any form of currency, points, credits, resources, content or other items or units recognized by a group of individuals or entities as representing a particular value and that can be transferred or circulated as a medium of exchange.
Cheers!
Brian Singer TheAppTree.com