This wouldn't work with the picture of the bird flying http://lytro.com/gallery/content/lytro_50_00087.php

On the other hand, it does look like they're interpolating between discrete frames. In their fourth example (http://lytro.com/gallery/content/lytro_50_00090.php), take a look at the piece of confetti to the top left of the middle head when the focus slider is about 1/3 of the way up from the bottom. It has a sharp edge, but there's also a halo around it from a frame where it's out of focus.

The images are created by interpolation from an image consisting of discs. The raw data would look like this: http://www.eps.hw.ac.uk/~pf21/projects/page1/assets/good-fnu...