To answer both the above, the rotation is extremely smooth. It rotates easily, since I didn't over-tighten the pulley. I just played Ikari and Heavy Barrel this weekend at the arcade w/ the rounded yellow joystick (which I think are not the original SNK rotaries, though) for a comparison, and the only difference I found was the arcade joys clicked when you turned them. I'm working on a few ideas to easily add this function though. The game play seemed exactly the same.
When I first built the Wonka hack I thought spinning the ball-top was a little awkward, but compared to the barrel joy at the arcade, I found it was easier to use in the end. I scored higher and played longer (per life) on both games using the Wonka hack.
In Mame32, I've had to adjust the sensitivity settings to find a comfortable level of control ('Tab', 'Analog Controls' then 'Dial Sensitivity', set to 80% or so). I think you have to do this with any rotary-like control though. Not sure.
As for Arkanoid/Tempest, since this hack is basically a spinner in disguise, YES you could use a Wonka enabled T-Stik as a spinner (4-in-1 solution??). I played them both just fine with it, the only potential issue is that you have to avoid moving the joystick left/right/up or down while you spin, since that activates the controls as well. It's not that hard to avoid though, since the T-Stik requires a good amount of pressure in any direction to engage the microswitch.
Oh, it doesn't "freespin" though, but I could never figure out why people need their spinner to spin freely for two mintues straight anyhow?!

I happen to have a "Nasty" spinner, but it isn't hooked up right now. I'll try to get it going over the next few days, so I can directly compare the Wonka Hack with a spinner.