Well, I hope it works, but I'd expect even lower returns if more people invest (although that makes people not be willing to invest, so it's self-regulating). I like Bustabit's system of a small dilution fee, so at least there's a small reward to old investors, while at the same time punishing bankroll divestments.
Crypto-Games also has a small divestment fee for investments shorter than 21 days.
Not sure if that's the same as a dilution fee, since I've never used that particular site you've mentioned, but seems like the same concept.
It's quite different. In the Bustabit case, the dilution fee must be paid by every investor, but it goes to investors. So it compensates older investors.