I'm pretty sure I did that the first time but just to be sure I tried again and it still doesn't work.
I log in and create a new character.
Then I go up to the first guy by the gate and hail him.
Go through the dialog and he buffs me and then it says my journal has been updated.
I look at the journal entry and it says to find the challenge for my first test (or however it's worded).
Walk the opposite direction of the gate and eventually find and NPC named The Challenge (a barbarian).
I hail him and he asks if I'm ready. I say 'I am prepared.' Then he tells me we're in a fight to the death and if I lose to see the first guy again and if I win then I have completed the challenge. I put on autoattack and then we just stare at each other.
Other players will walk up and say the same thing and then the two will fight. The Challenge will die and then respawn so.. something wrong on my side? I've tried exiting completely, just logging in and out, I've even deleted the patcher and redownloaded it but each time the same thing happens.
EDIT: Also I'm running XP service pack 2 and using Everquest Titanium edition if that's any help