Did this once, good for explaining which button to press by color:
Not really an issue while you're in the middle of a game. You either know what to press by then, or you don't, and by the time you remove your fingers to look, you've already died.
That and the rainbow scheme just looks horrible IMO. Unless you were going with a My Little Pony theme. it might work then. Maybe.
...I've yet to see a rainbow layout that looked good.
edit: Now if you had RGB LEDs lighting the buttons, and they were constantly transitioning, simulating a rainbow during an attract mode setup, it probably works.