Yes, a complete save file is required so that all players have the same possibilities.

As for playing on Xbox, everybody that I know of plays on PC for several reasons:

1. PC can easily reset a run. (On some consoles, there is no reset button.)
2. PC has all of the DLCs.
3. PC is up to date with the latest bug-fixes.
4. PC can easily stream the game on Twitch, which proves you are not cheating.
5. PC can easily show a timer on the screen, which is required.
6. PC can use the item tracker so that you don't have to waste time in your speedrun by showing the seed.
7. PC can use mods, which are required for certain non-vanilla categories.

Speedrunning this game typically involves playing for hundreds (or thousands of hours), so if you are serious about it you should obviously buy and play the game on PC.