I'm currently going through papers for NSDI, and the PC chairs had to send out a post saying how the papers where they are co-authors would be specially handled. NSDI not only allows PC members to submit papers, but the chairs as well!
In the theory community, we generally don't do this. PC members can't submit papers, apparently to avoid any conflict of interest. This is, from what I've seen, unusual, even for CS, which is already unusual in the competitiveness and importance of conferences. Most networking conferences, for instance, allow PC members to submit.
Does conflict of interest really exist in these situations? I don't think so; generally, from what I've seen, it gets handled, and handled appropriately. People on the PC realize it's a competitive process, and understand when their papers aren't accepted. Often when PC members can contribute papers the process is double-blind, so nobody "knows" the PC-authored papers. While I understand allowing PC-authored papers is a risk, I don't think it's much of one. As a comparison point, theory conferences almost never use double-blind reviewing, and I think just the name of a "prestige author" on the paper has a significant effect on the odds of acceptance.
What's the upside? The biggest is that it makes it easier to have larger PCs. I have 20 papers to read for NSDI. I can't remember the last time I had less than 40 papers to review as a PC member for a significant theory conference.