My opponent plays Challenge, I reveal a hidden Bone Skewer bringing Pyke into the battlefield where I have a Sneaky Deckhand. My opponent has a Sand Soldier in their other base. The opponent has declared that Challenge will target my Deckhand and their Recruit. Does this cause the showdown to occur killing Pyke and my Deckhand before the Challenge damage fizzles because the Deckhand is dead?

No — the Showdown does not interrupt Challenge. The damage from Challenge happens first, and Sneaky Deckhand survives it.

Here's the sequence:

1. Challenge targets are locked in when it's played — your Sneaky Deckhand (2 Might) and the opponent's Recruit (1 Might).

2. Bone Skewer resolves first (it's on top of the chain). Pyke enters the battlefield where Sneaky Deckhand is, making it Contested. Per Rule 321, cleanup triggered here becomes an Outstanding Task — it doesn't interrupt the chain. A Showdown is staged but cannot initiate while Challenge is still on the chain (Rule 344).

3. Challenge resolves. Both targets are still valid and on the board. The Recruit deals 1 damage to Sneaky Deckhand. Sneaky Deckhand deals 2 damage back. Sneaky Deckhand (2 Might) survives with 1 damage. The Recruit (1 Might) dies.

4. After the chain empties, the cleanup runs. The staged Showdown/Combat now initiates between Pyke (Stunned) and Sneaky Deckhand (1 damage).

So Challenge's damage does not fizzle — Sneaky Deckhand is still alive when Challenge resolves. The Showdown only begins after all chain business is done, meaning the two units will fight it out in the upcoming Combat Showdown.