Should students discuss this demonstration as a class or in small groups?

There's a lot to be gained by asking students to discuss the demonstation in small groups. This means that more students are likely to be involved and students may find it easier to express their opinions. Getting the groups to feed back to other groups provides further opportunities for comparison of ideas.

What other examples could I use to encourage students to think about dynamic equilibria?

You could show students a beaker containing ice cubes in water and ask them what is happening to the water molecules in the beaker. This is a good opportunity to stress the dynamic rather than static character of the equilibrium.

What questions might I ask about this equilibrium?

You might ask the following questions:

1. What do you see happening in the beaker?
2. How is this related to what's happening on a molecular level? 
3. What happens if the temperature of the water is not at 0 ºC?

How do these kinds of examples help students understand about dynamic equilibria?

They help students by providing an opportunity for them to explain what they observe at a macro level in terms of what's happening on a molecular level.