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Theory: Hultzen did compete.  He was beat out by Erasmo Ramirez.
From the Times:
"Ramirez is the only one of the four to have any Class AAA experience and is seen as the closest to the big leagues. Mariners manager Eric Wedge said Sunday that Ramirez remains in the mix for a rotation or even a bullpen job."
At the moment, Ramirez hasn't given up any runs yet, he mowed through three innings of Diamondbacks in 28 pitches on Saturday, and he is currently running a Cliff Lee esque .67 WHIP.
Now we know that the Mariners love those hit to contact guys who eat up a lot of innings and never walk anyone.  Ramirez seems like this type of guy.
That's one theory.
Here's another conspiracy theory:
The Mariners brass was worried about Hultzen, Walker and Paxton's stuff.  It was so nasty in the dry and thin desert air, that the Mariners were worried that it would translate into  passed balls and beaned fans, when those balls started to spin and catch traction in the cold, dense wet sea air of the Safe.  "We don't want to make the new catchers look bad" they decided.
Therefore, the trio was sent on a Minor League assignment to play on the Tacoma Raineers to acclimate their stuff and maybe tone it down a little bit.