This seems like a good (but not entirely new) idea. For the price of a wireless camera setup I don't think it matters whether the UK buys them or makes them - this is not rocket science.
That said, the Israelis have a penchant for this kind of thing, and I would expect them to get it right.
As for disabling the grenade with hammer / paint - surely the camera would have served it's purpose? While Terry vandalises the surveillance, a less civilised version can be on its way into the room.
... or out, if the tech-savvy terrorist can think under pressure.