The problem is not "does it work?" (it obviously does) or "can we have enough light to see by?" (maybe), but "what is the overall efficiency?"
By using a rotor designed for bridging the gap between spokes and tyres, not optimised for use as a generator, they are immediately cut off from any of the design efficiencies available to ordinary dynamo/alternator makers.
According to their patent, they can reach 60%: 1.2W of electrical power for 2W of braking at 20km/h, and because they seem to be using the pair of LEDs as their rectifier they are about as efficient as they can be converting that to light. They claim the system works up to 10mm from the rim (although presumably the above power requires closer operation).
Having the magnets rotate with the rim (with some slip) means that they aren't creating the full eddy current brake effect, and by using rare earth permanent magnets they get away with all the big air gaps. (Air gaps are bad when you're making your field with coils, because air's low permeability means you need more current and so more resistive losses to make the same field strength in air compared to iron. But with permanent magnets there's no on-going energy cost for the field. The air gaps clearly harm power output, but i think have only second-order effects on efficiency.)
I'm a bit dubious about their installation design, but i think they have a great product idea there.
They now have a shop where you can buy the lights (£200 for a full set - ouch!), and more interestingly a patent published:
full text translated to english: http://www.google.com/patents/WO2013004320A1?cl=en
key image: http://worldwide.espacenet.com/publicationDetails/biblio?CC=WO&NR=2013004320A1&KC=A1&FT=D
It's both cleverer and simpler than i'd imagined.
According to their patent, they can reach 60%: 1.2W of electrical power for 2W of braking at 20km/h, and because they seem to be using the pair of LEDs as their rectifier they are about as efficient as they can be converting that to light. They claim the system works up to 10mm from the rim (although presumably the above power requires closer operation).
Having the magnets rotate with the rim (with some slip) means that they aren't creating the full eddy current brake effect, and by using rare earth permanent magnets they get away with all the big air gaps. (Air gaps are bad when you're making your field with coils, because air's low permeability means you need more current and so more resistive losses to make the same field strength in air compared to iron. But with permanent magnets there's no on-going energy cost for the field. The air gaps clearly harm power output, but i think have only second-order effects on efficiency.)
I'm a bit dubious about their installation design, but i think they have a great product idea there.
As for my initial speculations that their system might just use coils with no magnets and on it's industrial applications to train braking, well, the Japanese are ahead of me: https://www.jstage.jst.go.jp/article/rtriqr/50/3/50_3_173/_pdf