The scooter doesn't balance so well, but when it does balance, it works the same way as a regular scooter -- The faster you go, the more balanced the scooter is.
The scooter doesn't exactly avoid obstacles -- it can't turn -- but it does warn you when you are about to bump into an object by beeping very loudly.
The wheel itself doesn't light up -- the color sensor, hidden at the bottom of the scooter constantly flashes red, green, and blue at the wheel. So from a side view, it appears that the wheel is lighting up.