The Labour leadership election is an ongoing circus, largely driven by the media and personalities involved.
Back in September last year I argued that having the leader directly elected by party membership (and not just the party caucus) was a good thing - a decision made by the wider party would unite them behind the leader and result in a stronger outcome, as had been the case with the UK and Canada's Conservatives, both of whom directly elect their leaders. The same is sort of true for the leader of the UK Labour Party.
Judging by how New Zealand Labour went at the general election and how this leadership election is going for them, I'm not so sure that assessment is correct. As I said last year, the segmentation (i.e. giving the unions a vote as well as members and the caucus) exposes things the party doesn't necessarily want exposed, especially the division between caucus and the rest of the party, which has handicapped David Cunliffe. The UK Labour Party allows individual members of "affiliated" groups (unions and socialist societies*) to vote as if they're ordinary members of the party.
Perhaps a straight "one member, one vote" system along the lines of the sort of system the UK Labour Party uses is best. But that would require NZ Labour to lesson the influence of the unions, not something I think they're likely to do. Either way, it comes down to the personality of the elected leader. So I'm sure the benefits of having members involvement in the election of a new party leader are yet to be seen for NZ Labour - and may not be for some time.
*Apparently they still exist.