Yes, Williams' flywheel is a carbon fiber composite with iron particles mixed in so that it can generate electricity directly within the flywheel, instead of having a separate generator that is driven through a COMPLICATED mechanical variable-speed drive. They have been working on it for at least 3 years, and have it running in the Porsche GT3 Hybrid that almost won the 24 Hours of Nurburgring this year. I have read that on a mass basis, the flywheel can store more energy than a lithium-ion battery, and doesn't have the same limitations in terms of how quickly it can be charged or discharged, and will not lose storage capacity over time. These are the kinds of issues battery engineers are working to overcome, but you never hear about in the mass media blather about pure electric cars.
The flywheel definitely has the technical challenges you mention, so it's not assured that Williams will be successful. And I also wonder what effect on handling the flywheel will have. It's basically a big gyroscope, so will the car be more eager to turn one direction than the other? But as a techie, it's a story I will follow in the F1 saga of 2011.