Does this really work?
Probably not in the way described, since your EEC uses engine coolant temperature to decide if the engine is hot, not air intake temp. Given that your source has got even this elementary fact wrong, how much would you trust them?
Are there any bad effects from it?
Well you are right, it will mess up the mass air flow rate calculation, so when you run open loop it will chuck more fuel in. This might burn your cat out eventually, depending on the duty cycle.
I'm not too sure whether it will increase or reduce the power, I think most people here who have tested engines on dynos would claim you need to be slightly on the lean side of stoichometric for maximum power.
Have a think about it. When we calibrate an engine we want to maximise the power output within the other constraints of the engine. If just chucking a bit more fuel in at WOT helped with no downside, don't you think we'd do it? To my shame we actually chuck extra fuel in anyway just to keep the exhaust valve and the cat cool - adding more really won't burn any more oxygen, so it won't create any more power. Cheers
Greg Locock