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I've been playing through Borderlands again, trying to complete all the missions. Occasionally, I've unlocked challenges in the game like "Not Really a People Person" (Kill 250 Humans). Some of these challenges are quite time-consuming and since I have yet to complete "Mad Moxxi's Underdome Riot", I was wondering, do kills and other actions in the underdome count towards challenges?

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Yes, they do count. I've completed a human kills challenge in a Riot Arena. The Borderlands Wiki article on this DLC has this to say (emphasis added):

No experience is gained from kills inside the Underdome and consequently weapon proficiencies are not affected, although it is still possible to complete challenges for experience.

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I've completed numerous challenges in the Underdome, one even leveling me up, IIRC. –  MBraedley Jun 16 '11 at 2:10
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