Hmm. Interesting question.
I think it doesn't work well with an AC guitar signal, but feeding it an envelope would work.
As shown, the LEDs naturally sit at half-brightness (well, OK, half current) with an input at the Vref (or adjusted to look that way by the trimmer). An AC signal like guitar would make the LEDs track out of phase up and down, OK, but the receiver, often a human eye or an LDR, would average this so that they still looked like they were at half-brightness all the time, in spite of them running back and forth madly. They're still doing the right thing, but a human eye or an LDR couldn't tell it. That's why doing an envelope ahead of it would work better.
If you had an envelope that was at ground for silence and a volt or two for signal peaks, you could sure make the thing have one LED off and one fully on with silence, and these would flip states on the peak of the envelope, then slide back to the silence value.