Step 1: Parts Needed
Old rotary dial phone (broken preferably, please don't destroy working pieces of histroy)
LED and LED housing (I got mine from Radio Shack)
Plug and wire
I found my broken rotary phone on eBay.
The iPod dock that I used was coincidentally perfect for my design (I'll show you why later) was the Magnasonic MAG-iP860K. I found mine online at Amazon.com.
Dremel tool (or suitable power rotary tool)
Hot glue gun
Drill with small drill bits
Soldering Iron (I used a 15-watt iron)
Step 2: Disassembly
You are also going to want to take apart the iPod dock as well. You will need everything that is on the inside of the main piece (this will include all the circuitry that will connect your iPod to the speakers and volume control) and the two speakers (you will need to get them open and un-solder the wires from your speakers. Keep the wires you will need them later.).
What you should have now will be all of the insides of the iPod dock (including wires), and a completely gutted rotary dial phone. At this point in time I would recommend heavily washing the phone (there is no way you know where that thing has been over the last 50 years).