Mike Bontoft and I have built a gas engine inertial dyno. First, plan to spend over $2000 for machining, hardware, and software. We have the advantage of two fairly well equipped machine shops, so Mike did the machining. We used Performance Trends software and it has a section that you can use for inertial wheel design. It will predict that the wheel diameter that you want to use (5 to 51/4 inch) is over stressed. We used heat treated 4140 steel, and the stresses from a simple calculation are very close to the yield point. Be very careful.
Look at the beautiful brake dyno Jim Allen built. There are pictures in his album. I have pictures of our dyno as well. One is attached.