The Ice Bulb is very cheap and simple to make and the result looks amazing. This instructable will be to basic for a lot of people here, but surely someone will find it a fun project.
View the video
About the pictures: My camera is not able to replicate all the light from the LED. Therefore you will see some large patches of solid white. This is not how it looks in real life. Trust me, it looks a lot better.
Step 1: Attach wires to LED with tape and stuff it inside the balloon.
Stuff the LED inside the balloon but keep the wires on the outside.
Now is a good time to test that the LED actually works. You do not want to find out that it is faulty after it is frozen inside the ice...
Step 2: Fill the Ballon with water, tie a knot and freeze it.
Lay the balloon on a flat surface before proceeding.
Stuff the wires down the balloon till you have the LED at the desired position inside the balloon. It looks best if it is at the center IMHO.
Tie a regular knot and drag the wires all the way through the knot.
Freeze the balloon. Be careful of how you place the balloon in the freezer. If you do it the wrong way the LED might freeze in an undesirable position. Try to place it so that the LED is suspended in the center of the balloon.
I think it looks great when the balloon is not completely clear. This way the light is reflected in unpredictable directions. If you want to make clear ice you should read this.