There are many ways to create that effect with video editing. He very possibly could have achieved that video with digital means.
I want to believe it is real, but I don't think it is.
Apparently, and don't quote me on this, he put up for a short period of time and explanation on his website where he simply admitted that the whole thing was a hoax. Someone on these forums said this. I wish they would have copied and saved his message, I'm guessing it was only up for a short period of time, and then he realized how negatively people were responding, and took it down and leave left the whole thing alone as a huge mystery. If that's what happened, then I really wouldn't be mad about it. He got lots of attention because of those two videos he put on youtube, and I'm glad that I was able to find him because of those videos. Sure, it would have been a big lie, but comon', we're magicians. Maybe it was just the largest magician fooler trick of this decade or something...
He posted this on his site for a few days months back. It is saved in the internet archive here:
http://web.archive.org/web/20080209121223/http://danielmadison.co.uk/Change.htm
So he claimed that r3man and himself knew the secret, and that there are 11 facts about it. (hmmm... 11? Theory11? Conspiracy theory?)
He listed these four facts, and hasn't mentioned anything about them since then:
3: It is a trick
5: Two cards are in use
6: Change can be done with any two cards from any deck
8: Nobody has discovered Daniel's method as of yet
Also, I thought I heard that Richard Z or someone from the Dangerous shoot say that he showed it to them in person and that it is definitely a real effect. People were saying that the T11 crew had "confirmed" it. I don't have sources for this, so I can't know for sure.
So basically there is good evidence both for and against the existence of this effect. At the moment, I think it is fun to believe it is real, but I wouldn't get your hopes up.