I'm very intrigued by this, mainly because of the relatively low price-point of the parts. I've been following the discussion on coffeed as well, but don't have posting privileges there (yet).
A couple thoughts:
What does the device measure?
The device likely measures the temperature of the head much more than the water. I suspect this as the thermal mass of the probe itself is relatively large, which is then welded to the bolt (which is in contact with the rest of the head), so a few ml of water flowing past it isn't going to change its temperature much.
Is this an issue?
Depends on what you want to measure. The brew heads "work" because their thermal mass is so much larger than that of the water whose temperature needs to be "tweaked" as it flows to the portafilter. If the goal is to determine or set a repeatable point for brewing, measuring the head temperature "makes more sense" to me than measuring the water temperature.
Is thermal lag an issue?
Thermal lag of the probe itself, and the measuring device in general. Yes, thermistor probes generally have higher time constants (or "rise time") than thermocouple probes. Probes with more thermal mass are always going to react slower than those with less. Again, the question is the purpose of the measurement. I don't believe anyone measuring much finer than 1-second intervals and what is the value for the home barista? You aren't designing a feedback control system for the brew temperature. You're observing it do whatever its going to do in response to your technique.
I've read some disparaging remarks about the response time of these inexpensive thermistor devices, but until I measure the rise time of one, I'm withholding judgement.
Measuring "rise time"
I'm going to try to pick up a Taylor 9842 (food service) thermometer this weekend and make some rise-time measurements. As Cannonfodder has pointed out, the absolute accuracy isn't that important (even high-end T/C meters are not much better than 1 deg. F), but repeatability is. The Taylor can be user-calibrated if you want, from my discussions with the manufacturer, and runs $15-20 through a variety of retail outlets.
Rise time is generally taken to be the time it takes to go from 10% to 90% of the change. For most systems, it is reasonably independent of the magnitude of the change. Since we're typically talking only around 10 degrees F, that last 10% is within 1 deg. F of the "final" reading.
Thermocouple-based approaches
Past that, if I get nutso, Omega can custom-fabricate T/C probes with S/S sheaths from 1/8" down to 0.010" diameter, and probably in a reasonable length. Prices on the stock 6" long probes are under $30, with or without a connector attached. They can fabricate them down to a 2" probe length at bascially the same price, with about a two-week lead time.
http://www.omega.com/ppt/pptsc.asp?ref=JMTSS&Nav=tema07
http://www.omega.com/ppt/pptsc.asp?ref=JMQSS&Nav=tema04
They also have handheld meters for about $85, and if you want something flashier/neater, the 1/32 DIN controllers are about 1" x 2" panel size start at around $169 for the "plain" ones, mid $200s for the fancy ones with color-changing displays and computer interfaces.
Even the "best" T/C meters are only accurate to about 1 deg. F
plus the probe errors unless you spend a lot more money for a calibrated probe. Many are 1% of reading, or even 1% of range, often additionally plus/minus one or two degrees on top of that, which could be several degrees.
If you're trying to convince me that you "know" your brew temperature is 202.5 degrees, you've got a hard sell with even this kind of gear. On the other hand, if you're saying "it seems a degree hotter than before" then you're probably safe with the statement.
http://www.omega.com/ppt/pptsc.asp?ref=CN132&Nav=temp03
http://www.omega.com/ppt/pptsc.as..._Series&Nav=temp03
Pre-fabricated adaptors
Omega's compression fittings unfortunately all seem to use pipe threads, not screw threads. One possibility may be to take existing fittings, turn them down in a lathe, then thread them. This seems excessive.
http://www.omega.com/ppt/pptsc.as...LK_SSLK&Nav=tema07