Step 2: The black letter mask
The key to making the clock look nice was making the glossy black letter mask. I thought of several different ways to make the letters, such as silk-screening on the back of the glass, or having a custom black sticker made, but eventually I settled on printing black onto transparencies - see the attached PDF file.
Since there's a lot of black ink, I had my transparencies printed at Staples for something like 50 cents a piece. The ink wasn't quite black enough to completely block out light, so I printed 2 of them and stacked them. Depending on how dark your ink is you may need more or fewer layers to get an opaque black.
Cut off the clear parts of the transparency so only the black square is left. Align the letters of the two layers and tape the layers together with double-sided tape on the top and bottom black regions - see photos 2 and 3.
Note: the viewable area of the Ikea frame is 8.5" square, but unfortunately you can't print all the way to the edge of the transparency. Therefore you need to cut a piece of construction paper to form a border and fill the gap - it also adds a nice touch of color. Cut a piece of construction paper to be 9"x9". Mark lines 0.5" in from each side forming an 8"x8" square (photo 4). Use a utility knife to cut out the inner square leaving a 0.5" paper border (photo 5). Tape the transparencies to the back of the border (photo 6).
Now, cut out a square piece of the black garbage bag big enough to cover all of the letters. Tape this on the inside (back) of the letter mask to help diffuse the LED light and make the letters a dim gray when not illuminated. Also, put a piece of black electrical tape behind each of the non-used spacer letters to make sure no stray light gets through.
(Edit 8/1/10: Added a better description of the construction paper border and more pictures)