Hey honeyjigga,
While I obviously can’t comment on the work that merkzu has done, I would like to address some of the things about Zeo and possibilities for merkzu.
I may be getting to work with Zeo soon and I’d suggest you keep your eye on it for exciting improvements. Zeo uses the headband on the forehead for several reasons. It is the most comfortable way of arranging it without covering your eyes (not everyone likes a sleep mask). They also are primarily using EEG and want to monitor all sleep stages, not just REM. As such they are more focused on monitoring your brainwaves. That being said, if positioned correctly I’ve been told that EOG can be seen as well.
In terms of improvements to merkzu’s design. I think everything you listed is certainly possible. For wireless communication: either you could use a simple (but expensive) bluetooth protocol, or I’ve actually been working with some cheap microcontrollers with wireless built right into them. Light cues are easy. I would suggest that for the audio…instead of having a microphone with recorder(though certainly possible), a mp3 decoder with a SD card slot would be much more adaptable. Record/edit/pick a song you like, load it on the card, and you would be good to go.
I definitely think there is a market for this kind of thing…and have been working on general ideas in my head. Wish I had more time to work on a prototype of my own.