Is that gauze a medicinal gauze? Would there
be anything in there designed to kill bacteria which could harm the fry? Also, do they make gauze out of synthetics these days or are they still making them out of sterilized cotton? It is a clever idea - sort of like using stocking material, but may present dangers of another sort. There is also chance the fry would get pinned to the material by the flow, at least for a while.
Once a student of mine tried cotton balls as filter box material. He couldn't believe how cloudy the tank got as the cotton began to rot. That mess also happened surprisingly fast. Fortunately he got the cotton out and did a couple large partial water changes before his fish were hurt.
The safest fry-compatible filter would be one of those standing Hydro-Sponges sponge filters such as Ken's sells. (See the add on this site or also http://www.jehmco.com/PRODUCTS_/FILTRATION/Hydro-Sponge_Filters/hydro-sponge_filters.html I prefer the small Jungle style sponge filters - though others claim that fish have been crushed and suffocated under them. My guess is that the fish died and were pulled there.
(Quite a few filters have been blamed for fish deaths. Most of the time the dead or dying fish were pulled there by the current when it was "all over" for the fish.)
In addition to being great biological filters, sponge filters also are a source of food for fry. You will see fry picking at them as they graze for rotifers and other micro-foods.
Just as safe, would be corner box filters with the tops off. Certainly fry get caught in plastic box filters, but seldom are hurt in that they feed on passing food until the aquarist sees them and opens the box.
In a 15-gallon tank we have an Ovation Submersible power filter. That is made by Supreme. I think that there is at least one German company which makes a similar filter. It is basically an encased small power filter which draws the water through a little sponge and returns it to the tank. Judging by the numbers of small Poecilia (Limia) melanotaenia cruising around the tank, the filter isn't making a dent in their numbers. ;)
Some power and canister filters are adjustable and can be turned down. Others can be moderated by attaching extender tubes to their intake. It may be possible to buy these tubes with slots. Some aquarists have taken a drill and fixture and drilled lots of tiny holes in them.
That may actually make those filters more effective! Some power filters pull the water past the filter media so fast not much chemical or biological filtration can take place. Slowing the flow may actually make them more efficient.
On the whole, if you would check with aquarists who raise a lot of livebearer or killifish fry, you would find that they mostly use sponge and box filters powered by the air from one pump. (Linear Piston pumps or Linear Piston Air Compressors are considered the most efficient and cheapest to run these days for a lot of tanks.) While that may be a realistic adjustment to caring for 50 to even 300 tanks, the sponges and plastic box filters still do the trick.
They all depend upon weekly to daily partial water changes for the rapid growth in their fry anyway.
All the best!
unc;e