Providing there is a job coming up, why did he feel the need ask you to work harder. Why not just pick the right person for the job based on how they are performing. Saying 'They may have to choose' will indeed get you working hard, as it will the other candidate if he was also told, but this is not the way to pick the best person for the job.
Having said that it could be that it was a friendly warning that your crap, or a friendlier warning that your doing well.
I'd be speaking to the other guy (temp person), or just get on and do the job to best of your ability and hope it's good enough to warrent a perm position.