Software or video interpretation to create live dance floor effects
I think most things like this tend to be specialty installations where the system and image processing is designed by the artist making it.  The exact ways to approach it would depend on the particular type of effect you are trying to produce.  It could be as simple as storing the last few frames and blending them together with an average that is weighted towards the last frame to give it a blur look or various other possible methods of effect.

At it's simplest, you might look at some of the simple effects stuff that some webcams make available, but I'd expect you'd need to do custom work for most of it.  You could also look in to video jokey software that might have some components that could be used for this kind of thing, though I don't personally have a whole lot of experience in that particular arena, so the amount of help I can give is limited there.