Hi, first post on here :wave: and this topic is interesting to me, I am a keen cyclist with experience of all types of bicycle lighting and have built quite a few bike wheels including dynamo hub ones.
Recently I bought a Novatec EDH-2 dynamo hub, still on Ebay at the moment for £22.54, complete with some cabling and a set of incandescent lights:
http://cgi.ebay.co.uk/ws/eBayISAPI.dll?ViewItem&item=361733606215 This guy has sold a few already but he might do you a deal on whatever stock he has left.
The lights are obviously inferior to and less reliable than LED ones, but the rear Soubitez rack light does not look too rubbish and both might work adequately with LED replacement bulbs. I have not tried the ones I got and the front has no switch anyway so not really ideal for a hub dynamo (you can have the pair for your project for cost of postage if you want them, PM me).
The Novatec hub dynamo would suit the project very well, better than a Shimano IMO as it has fully accessible and serviceable cup and cone bearings on both sides, unlike all Shimanos where access to the right bearing is not possible without extreme care to avoid breaking the live connecting wire. It isgenerally considered a robust and serviceable design criticised for being slightly more draggy than even the cheapest Shimanos and in particular with lights off it has slightly worse drag than with them on (but over all still barely detectable without sophisticated test bed equipment).
It has been suggested that this is due to the zener diode included to provide overvoltage protection, which would be necessary for the bundled light set. However all modern StVZO German standard approved LED front lights have this built in including to protect the rear light, so the zener diode can be removed, which is child's play as detailed here:
http://wiki.openstreetmap.org/wiki/User:Zapfen/EDH-2-Mod I have temporarily detached the end connected to earth on mine and I can definitely feel increased resistance with lights on compared to off, but I could be imagining that...
Best cheap but usable LED front light is, according to reviews, the Axa Pico, circa £12 on line at Ebay or Amazon, switched and un-switched variants probably exist but I have not checked. For your project I would suggest the best option for the rear would be a rack mounted one assuming bike has a rack, failing which a mudguard mounted one. Attaching one to seatpost or seat stay (the frame tubes that run from the back wheel hub to the seatpost) is probably not the way to go if a bike is likely to have large loads attached.
You can buy large reels of suitable cabling, if rated for 1A it will be absolutely fine, or you can re-use domestic appliance wiring as it is much thicker and more durable, and more than capable of handling the current. The twin core stuff is ideal for this but you can also use 3 core just fine, e.g. should be able to pull out the extra: send out an appeal to friends, family, etc for them to cut it off the appliances they throwing out and send it to you.
Getting LED polarity right is no biggy, if does not work one way round then swap and it should do- as I understand it you cannot harm an LED by wiring it the wrong way round:
techies please correct me if I am wrong!
Bottle dynamos are an alternative to wheel building but as said they are not as durable, the best ones from B&M etc. are no cheaper and still not as good as the cheapest hub dynamos. They all suffer from issues of alignment difficulties, potential for slipping into the wheel which would be a particular hazard at the front-
never fit a bottle dynamo behind the front fork and preferably not at the front at all, only in front of the rear seat stays.
Wheel building takes a bit of learning but I managed after a couple of attempts, the only absolutely essential tool is a spoke key and you can use the bike frame or forks as a 'truing stand'. I would not be surprised if a few locals already have a good grasp of this, but if not there are numerous Youtube videos to help plus lots of guidance on the Cycling UK forum
http://forum.cyclinguk.org/index.php?sid=ad4698b9e16c2253e6df1a2c4587537a particularly anything posted by Colin54 who used to be the wheelbuilder at Spa Cycles, building wheels for the demanding needs of cycle tourists. If you join and post on there you will probably get lots of help.
Generally you can re-use the wheel rim but will need new shoter spokes- the exact length will need carerful measruement of the rim and calculation using an online spoke calculator, e.g
https://leonard.io/edd/ I fancy the bikes you will be working on will either have the MTB 26" rim size or old fashioned British sizes like 26 x 1 3/8", best to find out and take measurements- if they are all similar you can buy boxes of spokes in bulk, possibly from a wholesaler if you ask around local bike shops. For you purposes almost any spokes will do and stainless is not necessary, galvanised should last for decades if not exdposed to road salt regularly.
Regarding Reelights etc. these are not adequate for riding on unlit UK roads let alone anything less well surfaced, they are not bright enough and generally only work in flashing mode- OK for lit streets but do also give a bit of hassle in terms of needing careful alignment and frequent re-alignment.
I hope that all helps