According to German standards, the lights should be flicker-free at walking pace (I think they walk quite quickly). My Shimano DH-3D71 with Lumotec IQ Fly senso flickers to about 3mph then goes solid. The standlight is a much lower level of illumination and it flicker up to the riding illumination.
When you spin a dynohub you feel some resistance and notchiness, it is just the resting position of the coil within the magnet and does not cause any drag when riding. The actual drag casued by power generation is hardly detectable.
Ive never found a modern dyno-hub user who was dissapointed with their setup or who wanted to revert to batteries.
German standards which are the highest and best national standard and you should make sure your system is compliant with StVZO regs.