My understanding....
If Faraday knew that magnetic fields will remain stationary, when an axially magnetized magnet is spun, then he'd have no paradox.
Here's an old video from 2009 by AdminOnDuty, which shows the phenomena:
http://www.youtube.com/watch?v=rWO7O5hvzWEApparently, Bruce De Palma's 'N Machine' operated with this understanding. Rules and laws don't account for static forces in a moving magnetic object, or at least for Faraday they didn't. You can spin a magnet at 90 degrees and witness what is expected, but not along it's axially magnetized direction. There are some potentially incredibly powerful phenomena to be explored with that understanding and, presumably the 'N Machine' made fine use of that knowledge.
If we look at the charging of the capacitor, the field has to interact with the electricity, to cause a reaction, which is displayed as a charge upon the capacitor.
Here we step into Ed Leedskalnin's boots - Both electricity and magnetism are the same thing - at a molecular level and deeper, we and everything around us are built from magnetic forces, bond formations based upon the characteristics of different elements...what keeps an electron in orbit ? why does the Earth have a lock of orbit ? - big, small, fast, slow.
Being the same thing, both will appear to interact, one will display characteristics of the other. One is present when the other is present.
All is counter intuitive, based on regular schooling. If we spin something, we expect whatever forces it displays to spin too. How odd it would be, if when spinning a standard metal rotor the middle didn't turn but the outside did. Well, if we cut a ring just inside the perimeter of that rotor, fit a ring magnet to the inside edge and a ring magnet to the other side of that edge, we then fit magnets to the circumference and we can have exactly that situation. A perfectly fine running rotor is the result, with no moving middle.
That is what happens with the lack of energy produced to charge a capacitor with a spinning magnet.
All may turn, all may seemingly interact and all, should, produce an electromagnetic effect that we would expect to charge the capacitor - but it doesn't. The magnetic field stays put in the spinning magnet, a non moving, special characteristic, as very nicely displayed by using a CRT screen in the video above

However, if a piece of magnetic material is added to the side of such a magnetic, then the imbalance will cause the flux to behave as expected...inducing a charge on the capacitor, relative to the strength of that attached piece.
Could be very wrong and i'm all ears for rebuttal
