I originally had this idea a few years ago, during one of the Halloween contests. Unfortunately, due to time constraints, lack of effort, and lack of coconuts, I could not.
These little guys will last year after year (pumpkins are meant for eating, not rotting on your porch in two weeks). Just be sure to watch them so they don't catch fire (like most candles). Because, while he may look friendly, this b**** wants to burn down your house, and will sacrifice his life to do it. Crafty, evil little things.
Step 1: The Goods
1. A victim. (I have three)
2. A dremel. (for cutting)
3. Tea candles. (for lighting)
4. Sandpaper. (for sanding)
5. Something to scoop out coconut flesh, like a grapefruit spoon, knife, or chisel. Not pictured.
Step 2: Drain the Coconut of It's Fluids
Stick a screwdriver in the eye of the coconut and press. Mine went in easily, without any need for pounding. Wriggle it around to open the hole wider, and then repeat it for the other two.
You can also use a drill, or dremel.
Drain into a cup, if you like to drink that nasty swill.
Step 3: Sand 'er Down
Then, take the sandpaper, and sand down the rest of the fibers and shell, leaving it nice and smooth. Don't sand too much. Try to leave some of the natural grooves. They're nice to look at sometimes. Sometimes.
Step 4: Decapitation
Use the dremel to score the line to the flesh of the coconut, and pop off the top with a spoon/knife/etc.
Step 5: Gut It Out
Taking the flesh out of a coconut is hard, even when the coconut is split into halves. Now try doing that through a very small opening. It's like liposuction with a spoon. Difficult, but not impossible.
I used a craft knife, and, with dedication (and thinking about my mother-in-law), I managed to remove all of the coconut residue from the inside.
Just don't be too rough, otherwise you might break your coconut, and have to start over.
Oh, and do be careful. I accidentally harmed myself while doing this.
Step 6: Facial Reconstruction
This took me quite a while, because I wanted to make sure everything was just how I wanted it.
My accomplice kept interrupting, and adding details I didn't want. He thought he was "helping". Grr.
Just be careful and use eye protection. If you've never tried to carve something out with a dremel before, take it slow, and read some online guides before continuing.
You may want to consider using a drill and a very small saw if you don't have a rotary tool.
Step 7: Create Base
The point on the bottom of my coco-lantern was a bit too pointy for the base, so I sanded it down.
Step 8: Insert Tea Candle, Aaaand Finish!
All that's left to do now is to place the tea candle in and light it.