Does Gamma Correction Interfere with Sub Pixel Motion Estimation?
When one does an operation Wrong / Right aren't strictly defined.
In most cases the questions are:


What's the model?
Is the model reasonable?


When you do sub pixel motion estimation on frames which are highly correlated you can assumes the change in values, even after non linear operation like Gamma Function, is small.  

So basically the model assumes that even after Gamma Correction the spatial correlation between 2 frames is kept.

You can do a small test by generating image supposedly in Linear Color Space.
Generate another image as a result of a small movement of the previous image.
Have a look on the spatial correlation between the 2.
Now transform each using Gamma Function and measure the correlation as well.

If their model is reasonable, the correlation in both cases will be similar.