Looking at the FAQ, I see no prohibition on coding up my solution and unit testing it on my local linux machine, then pasting an answer I'm satisfied with in the solution window.

Do many other people do this? If yes, what sort of environment do you have set up? If no, why not?

At work I write mostly C code and use Cpputest to drive C tests, edit and compile in emacs. I have no idea what sort of environment would be best for development and unit test of python solutions.