I wouldn't be surprised if the noise setting is a bit of both. A lower (but non-zero) amount of noise might actually improve the image quality, as per the dithering remarks. And a higher amount of noise might be used to artificially make the sensor in lower end models appear crappier than it is.
Noticing how high Mike could turn up the noise from the E4's default, maybe they were thinking of making an E1 ~ E3 at some point.
Yes, it was one of the projects. I found it when I was trying to do reverse-engineering myself. But seeing how lawyers are VERY active with cease and desist notices, I lost all interest. Completing and maintaining the project would be a lot of work, no reason to do it and know for sure that it will be shut down as soon as it gets any traction.
The limited (public*) efforts to RE FPGAs is as you said, largely due to political/legal instead of technical issues; due to how the devices are constructed their bitstreams have a very regular format so it's rather trivial to figure out. Now if only someone does it anonymously and releases like Wikileaks...
*because no doubt the Chinese have done it out a long time ago, and have just not shared their results, at least on the English side of the web, maybe for these legal reasons.