I'm finally ready to tackle this thorny one. I've been thinking about it for ages. Finally, a week or so back, I saw it in my heart and decided to record what I saw here.
I began thinking hard about this verse because it bears on the infallibility issue. Baha'is believe that, with this being the Day that shall not be followed by night, the Baha'is will never go off the straight path because the House of Justice is infallible and will guide them aright. House infallibility, therefore, is integral to the common interpretation of this verse. Needless to say, I think this interpretation is magical thinking. But it challenged me to think about what the verse does mean.
I don't know all the places where Baha'u'llah writes about this Day not being followed by night, but my commentary will be on its use in Suriy-i-Haykal, paragraph 63:
"O Temple of Holiness! We, verily, have cleansed Thy breast from the whisperings of the people and sanctified it from earthly allusions, that the light of My beauty may appear therein and be reflected in the mirrors of all the worlds. Thus have We singled Thee out above all that hath been created in the heavens and the earth, and above all that hath been decreed in the realms of revelation and creation, and chosen Thee for Our own Self. This is but an evidence of the bounty which God hath vouchsafed unto Thee, a bounty which shall last until the Day that hath no end in this contingent world. It shall endure so long as God, the Supreme King, the Help in Peril, the Mighty, the Wise, shall endure. For the Day of God is none other but His own Self, Who hath appeared with the power of truth. This is the Day that shall not be followed by night, nor shall it be bounded by any praise, would that ye might understand!"
In my view, when Baha'u'llah speaks of the Day that is not followed by night, he is referring to a transcendent spiritual reality - the one that came into existence with his appearance. The paragraph above tells us that Baha'u'llah has been singled out "for Our own Self" and that this bounty to him "shall last until the Day that hath no end in this contingent world". So the 'Day' that will not end is the spiritual reality of the bounty that came into existence when Baha'u'llah appeared.
The way I understand this is as follows: Baha'u'llah explains in the Kitab-i Iqan that no distinction is to be made between the manifestations. They are all one and reflect all the names and attributes of God. However, their revelations differ in their intensity, which means that, if some manifestations appeared not to show certain divine qualities, this was because of the purpose of their revelation not because the manifestation did not inherently posses that quality.
What we see in Baha'u'llah is God revealing "his own Self". Baha'u'llah's revelation is a supreme one in that God decided not to hold back anything and decided to reveal all of himself. Up to now, God has set limits on what the manifestations were permitted to reveal, but with Baha'u'llah, he let the limits go a great deal. The grace associated with this generous act is infinite and has ushered in what we refer to as the Day of God, for in revelation terms, God himself has been revealed in Baha'u'llah.
The logic of the phrase in question follows from this. What night could be followed by such a Day? Once God has been revealed, how could a night follow? This Day of God "shall endure so long as God, the Supreme King, the Help in Peril, the Mighty, the Wise, shall endure", as the passage above says, so basically nothing can follow it.
I am greatly struck by this idea of a reality being never ending. When I meditate on it, it forces me to think about how huge God is, that he has created this bounty that will never end. I believe the same 'never-ending' idea is also found in Baha'u'llah's Mathnavi. There, Baha'u'llah introduces the idea of a never-ending Spring. He first mentions it in line 36: "Bring a new green spring for all to see/raise up the dead for Your Resurrection", and continues discussing its qualities for another 30 verses.
But within this eternal Spring-time that Baha'u'llah's appearance has brought about, other familiar cycles continue, such as the cycle of revelation. Baha'u'llah tells us in the Kitab-i Iqan that a manifestation does not come unless the condition of 'oppression' exists in the world. In other words, for a manifestation to appear, the people of this world must have gone astray.
"What 'oppression' is more grievous than that a soul seeking the truth, and wishing to attain unto the knowledge of God, should know not where to go for it and from whom to seek it? … This 'oppression' is the essential feature of every Revelation. Unless it cometh to pass, the Sun of Truth will not be made manifest. For the break of the morn of divine guidance must needs follow the darkness of the night of error." Iqan, para 29
Here is the potential source of confusion. On the one hand, Baha'u'llah says that this Day shall not be followed by night, but on the other, he says that the darkness of error must exist before another manifestation will come. As I understand it, this apparent contradiction is explained by recognising that these two statements are true on different levels. Baha'u'llah's eternal Spring-time is an endless Day in the spiritual realm of the Kingdom. Baha'u'llah's many mystical works describe how its appearance affected that, and other, spiritual realms. This Day reigns outside of time; in fact, it reigns over all of the past and all of the future (500,000 years), which I think this verse in Tablet of the Bell refers to:
"Praised be Thou, O my God, I beseech Thee by Thy Day, whereon all days have been resurrected, and by Thy enumerating from it both former and latter times."
But within Baha'u'llah's eternal supra-Day, the cycle of revelation will continue, manifestations will come and go, and that will involve humanity passing through the darkness of error. This means that the Baha'is will experience a night too, and that, when it comes, their leaders will fall like stars from heaven, just as previous ones have.
"[The revelation of Baha'u'llah] will constitute the first stage in a series of Dispensations, to be established by future Manifestations, all deriving their inspiration from the Author of the Baha'i Revelation, and destined to last, in their aggregate, no less than five thousand centuries. "(Shoghi Effendi: Citadel of Faith, p5)
The Baha'i interpretation of 'the Day not followed by night' verse results in a similar error to the one made by Muslims over 'the seal of the prophets' verse. Again, it is a matter of understanding a verse on its correct level. It is true that Muhammad is the Seal of the Prophets, but Baha'u'llah tells us that this statement applies to the transcendent reality of the manifestation - firstly, that it is true of all manifestations and, secondly, that it is true of Muhammad specifically because it identifies his revelation as coming immediately before the Day of God. So, even though Muhammad is the Seal of the Prophets, this does not mean the cycle of revelation has ended, as most Muslims believe.
Similarly, the statement that this is the Day not followed by night is about the nature and intensity of Baha'u'llah's revelation - that Baha'u'llah revealed the Self of God. It does not mean that, all of a sudden, the Baha'is can never go off the straight path! God forbid. This interpretation is also a claim to the finality of revelation, for the night of error is a necessary requirement for a manifestation to appear.
I am not suggesting that the reality of Baha'u'llah's eternal Day does not affect what happens in this physical world. The Most Great Peace will come, and life across globe will get easier. But this does not mean that God will stop sending his messages in ways that are contrary to our idle fancies, and it also does not mean that humans will stop rejecting God's signs.