New dynamo brush shown.
Brush should work until the spring comes into contact with the housing. Brush will get rather sparky at that point which you might be able to see if you look at the brush end of the dynamo when it's dark. Might also mess up your radio.
I had this red light problem with my wagon. It would go out after you gave it a boot full but eventually decided to stay on all the time. Brushes were fine so gave that one and two others to a rebuilder. He said there was a fault in mine and one of the others. Spruced up the OK one and fitted it. Still don't think this one is 100% and the light will still occasionally come on full for a few seconds on start up. I'll keep an eye on it. Original regulators have had a long and hard life. New ones are expensive............