I used one of those silly "flashing mouth" LED things (like this). They consist of four LEDs, two batteries and a power button, all wired to flash at a seizure-inducing frequency and packaged into a rubber case that you're supposed to put in your mouth so people thing you've eaten a rainbow. They lend themselves to hackery because they have a simple on/off, whereas many flashing-LED toys (like bouncy balls, yo-yos) tend to have gravity-operated switches or auto-off timers that never stop before the effect wears out its welcome.
I bolted a metal bracket to a stack of about ten of those transparent CD-shaped plastic things you often get with a spindle of real CDs, sandwiched between two black CD-shaped plastic things you often get with a spindle of real CDs. Note: "real" CDs light up passably well, though not as brightly as the clear plastic because the light can't bounce around as much inside the stack (though presumably you'd get clearer color separation). I placed the flasher at an angle so I could use fewer discs, but it could be mounted vertically too. I then trimmed away some excess rubber and hot-glued the flasher to the edge of the CD stack, piling up a wedge of glue so the flasher can recline comfortably, and the button is easy to reach.
When switched on, each LED hits the edge of a couple of CDs and lights it up. The effect is surprisingly bright, particularly when viewed straight-on (or from "sitting in a car" level). Anyway, I hastily tied it to my bike rack and it survived its maiden voyage to work: concept proven. And since the flasher was designed to sit in one's mouth, I assume that it's spit-proof and therefore waterproof, so I won't mind if it gets a little soggy.
When the batteries die, I'll either open up the flasher and replace them (like 5hockwave2 does here), swap the whole flasher out for a fresh one (I have a couple), or bypass the little on-board batts and wire it to one of the other other electrical items I've got cooking, perhaps it can sit between a pair of turn signals?
Of course this should only be considered supplementary blingification and should by no means replace "real" reflective bike additions or lighting. But it's certainly better than nothing, and is a far preferable to putting that goofy LED contraption in a place reserved for bacon.