It solves some problems and creates some more. I believe it is more energy efficient, i.e. it can create less kinetic drag than a sidewall generator creates. But that's under ideal conditions.

Maybe it would help to experiment with adding a temporary surface on the drum of this dynamo. You might be able to make one with silicone glue, such as Shoe Goo.

One chief problem is that this is a very dirt-prone area of the bike. That's probably what did in rhm's generator.