How important is formatting...?

Formatting is 15% and what’s detailed as “formatting” in the rules (per section 17) is more about submission guidelines and less about traditional screenwriting format, style, and structure. 5% is grammar, and 80% is story.

That said, the winner’s scripts, the ones they post on the website, from my glance at those scripts, all of them are technically perfect, so that could mean the competition is so fierce to where that 20% becomes really important.

I think it would be really really rare to dq someone solely for formatting, and probably more to do with the end product being in a readable file format (e.g. a proprietary script file like .fdx, mmx, scw that you need the specific software to read) or I think some people have had trouble in the past with Writer Duet only converting part of their screenplays. I guess if you couldn't tell dialogue from action, maybe, but it would have to be pretty illegible to get a full disqualification.

I have to agree. Though, I did get a beta read this time that I really had a hard time reading, finally gave up and contacted the sender. She took a look and was speechless, lol. She had sent it in docx from Cerbx, or whatever, and it did not do well in the transfer of info. She did not think to check it, haha, that won't happen again. Anyway, she figured it all out and sent me a perfectly formatted script and apologized profusely. 

So, it can happen that the formatting is so garbled that a judge is not going to try and sort it out and if that is the case can't really blame them.

I did have a shorty story in WB that was just one big cube of story, no breaks of any kind, the line separation was barely there. I was able to read it, but it really detracted from the experience, haha.