It depends on what you mean by "reasonable." Yes, it works. As the paper suggests, it is a variation on steganography that hides a small stream of information in a large body of noise and uses a shared-secret (the MAC key in this case) to filter the information out of the noise. OTOH, it is really more of a mental exercise to show how US crypto-export rules were easy to get around if you were clever: according to the rules at the time you could "export" a cryptosystem that just performed authentication as long as it did not encrypt data. This particular bit of subterfuge is no longer necessary so no one is going to bother with it now and there are much better ways to do stego if you need to hide a message; you can also take the probabalistic encryption route if you need deniability...

This technique is entirely reasonable, although not incredibly efficient. There are several ways of converting between symmetric encryption and authentication; the only reason we talk about using, e.g., AES and SHA256 is that AES is much faster than any block cipher you can build out of SHA256, while SHA256 is much faster than any hash you can build out of AES.

I'm not qualified to comment on how reasonable this is, but it's author has a good bit of credibility -- he's the "R" in the RSA algorithm for public-key cryptography). Note also that this piece is over 10 years old.