This isn't really wavelets, though I guess it's a related technique. It's using a laplacian pyramid, which as you suggest is doing frequency separation, but it's achieved in the spatial domain by blurring and up/downsampling. (http://www.liralab.it/teaching/SINA_10/papers/burt-adelson19...)

It's far from the first use of this technique for CNNs, even for similar tasks. For example, there's LapGANs, that combined GANs with laplacian pyramids about 5 years ago. There's also LapSRN, that used this representation for superresolution.