The most obvious challenge: the DS isn't shaped like a guitar, and it's doubtful that any useful peripheral could make it be. According to Vicarious Visions' Karthik Bala, the company never considered adding a full Guitar Hero fretboard, due to a desire to remain compact.
Another challenge, and one that we find particularly interesting, was convincing Nintendo to allow Vicarious Visions to add buttons to the DS. Rather than providing a different interface for the existing buttons (like other Guitar Hero controllers), the Guitar Grip actually adds new buttons to the system that aren't mapped to anything else. And Nintendo had to get involved to make sure the peripheral was up to their standards.