Thanks for the photo, now I know what a box bike is. And now I see why someone above said you would not be going fast on a box bike. Based on that, I see no problem using a 3 watt hub that was designed for a full size wheel on that front wheel, as you probably would not be going as fast down hills on that as someone on a 700c rando bike.

I can't feel any drag on my bikes with dynohubs when the light is turned on. I know that there is some drag, but it is so minor that I often leave my lights on in daytime if I am not using my hub to charge batteries. Based on that, you might not have any real need for headlight switch on the handlebars, just leave the lights turned on. One of my LED lights (I got it on a clearance price) was built for a sidewall dynamo, it has no switch and when my wheel turns the light is on.

Two of my lights light up some different LEDs to provide better close lighting when I am going slower and brighter main beam when I am going faster (AXA Luxx 70 Plus and B&M Luxos U). I have no idea how the lights know the speed I am going, but I suspect that it would depend on the wheel RPM. If you bought such a light you might find that the close in LEDs turn off at slower speeds than you expected because you would have a higher hub RPM at slower speeds with a small wheel.

I have no suggestion for a horn, I use a bell. But a horn might need you to be moving to generate the power for it.