Notice that the video doesn't show Luigi being unlocked or provide any instructions to unlock him. Nintendo.com's answer on the subject is:
Q: Is Luigi in Super Mario 64?
A: Nope, not at all. Any screenshots you see from the original Nintendo 64 version are fake. He is, however, available as a playable character in Super Mario 64 DS.
(
http://forums.nintendo.com/nintendo/board/message?board.id=mario&message.id=77)
Ask Dan has repeatedly denied the existence of Luigi, as well as Ninja Mario.
The video may be Photoshopped, the ROM may have been hacked, or it may be Luigi from Super Mario 64 DS (I wouldn't be able to tell because I don't own a DS). I have screwed around with that star many times and never found Luigi, and I just screwed around with it a lot to be sure. I also Googled for more information, the assumption being that there would be a lot of buzz if that video was real, but I found nothing but people talking about hoaxes and reinforcing the fact that he does not appear in SM64. It would be pretty hard for something like that to remain a secret for 10 years, and even harder now that there are re-recording emulators to allow us to search the code, hack, cheat, and pull off any trick or glitch imaginable.