Funny bikes are only illegal for UCI-sanctioned events, and some national-level races too. Local stuff should be ok, but better to check with the organizers first.
As for the hubless wonder, doesn't look Photoshopped to me (damn good if it is). Hubless wheels have been around for about 15 years, invented by a guy called Frank Sbarro I think (mostly used on cars in the early 90s, and a couple of Harley clones a year or two ago). No reason why that bike isn't ridable, except the BB position.