The motivation must have been that it allows the integrated rims and hubs, which are probably much easier to manufacture than spoked wheels at this size. The downsides seem significant though: A derailleur with gears this small is going to wear very quickly, and when it is time to replace it, you just have to hope that Kwiggle is still around to supply you with spares.
I have been a bike-fiddler since my teenage years, but it was only recently (40+) I tried taking apart an intra-hub gear. To my surprise, the whole gear mechanism is fitted to the axle an can be replaced in one go [0]. The only functional parts of the hub/housing is half-bearings and ratchets. The cool approach for Kwiggle would be to replicate these and just pop in a Shimano gear.
[0]: https://si.shimano.com/pdfs/sm/SM-IHG-INTER7_ENG.pdf page 43 ff.