This is awesome! Making a local multiplayer game on a game jam has been on my mind for a while. Of course, most people try game jam games alone, but I am glad that didn't stop you from attempting such a cool design!
I play a lot of Thief Town with friends, which works similarly to this game, so seeing a twist in the formula that makes it more interesting than just mimicking CPU behaviour and mixing it up with a rhythm game is such a cool concept!
Honestly, the concept was executed so well that I am not sure if I have any more feedback, other than maybe forcing the player dancing to switch to another type of dance to throw them off if they can't adapt. Or having two types of dances going at the same time.
It's probably a stretch, but I believe this could work as one minigame in a competitive party WarioWare-like game based on minigames in which you have to identify your friends. Fantastic entry!