yup - u would need to do some image processing... the machine parts (in the background) should have a much different color than the wood pieces... how fast do those pieces pass the sensor? less than 25Hz?
what about a webcam (properly affixed with screws or so... connected to some stable USB box... like an OLinuXino...) that looks at the piece from the side?
1. how do u get a mainspower plug through that tiny hole?
2. that sparkfun sensor can b integrated easier, i guess... one just snaps it on the mains power line...
3. possibly u just measure the reactive power? i have no idea how that sensor works, when there r 2 wires with the same current (just the direction is the oposite)... i think u should wait for the high voltage experts... they should b here within a day...
it seems like it is controlled by temperature... there is no other way to turn the relays on or off... the temperatures can b controlled by the potentiometers...