If I would have known what you all were up to I would have told you to not go down the friction brake road. For a cheap build without a lot of electronics a hydro pump and throttle valve work pretty well. Eddy current needs some extra electrical work to be able to control the load. I have heard of small eddy current dynos built with an alternator.
A decimation filter like that, (under sampling and averaging), can only get you so far. A true low pass filter is much more mathematically complicated to do to a digital signal but you can always rig up an electrical low pass to the signal. It's just an opp app, couple of resistors and a cap. I would think a low pass of 5Hz or so should get you where you need.
Something else you can do to reduce noise is to add mass to the torque arm. It's a dirty trick that is often used in the NVH world but it's really effective.