Step 1: Assemble the materials
1 IR LED - i got mine at radioshack, apparently Mouser has good ones also. Make sure its forward bias is <= to 1.5 V, or you wont be able to drive it with a normal AA battery.
1 momentary switch, the smaller the better
1 Sharpie marker/highlighter
1 AA or AAA battery
and some wire, both regular battery-pack-connector style wire and optionally some thicker gauge wire for making the springs on the end of the battery compartment.
Step 2: Prepare the Highlighter
To make a hole for the switch I used a cheap soldering iron to melt a circle into the side of the pen slightly smaller then the switch. Then, before the plastic had cooled, I pushed the switch into the hole ensuring the switch fit snuggle and eliminating the need to glue or otherwise attach the switch later.
Step 3: Layout the parts/ Prepare the springs
To make sure the battery has a good contact, were going to build some springs out of the heavier gauge wire, similar to the ones found on 'real' battery holders. The easiest way to do this is to use a pair of pliers to wrap the stripped heavy gauge wire into a series of coils, then pull the ends so that the coil expands into a spring.
Step 4: Final Assembly
Solder the LED onto the wire going to the battery, and slide it into the pen so that the battery lead is coming out of the bottom and the wire going to the switch is sticking out of the switch hole you made in the pen. Attach this lead and the spring to your switch, soldering all of the connections to ensure a good contact. Then squeeze the spring into the pen and wriggle the switch into its hole. This part is fiddly - you dont want to kink the wires or damage the switch, and because the LED and spring are both stiff wires its easy to get stuff stuck. The trick is not to panic and not to force it - you have plenty of time to get it right. I found that reaching a thin screwdriver up from the bottom of the pen let me move wires around until I got the switch placed right. A small hook to pull the spring down the pen would be good too.
Once the switch is in place its time to deal with the other end of the pen. Make another spring from the heavy gauge wire, and solder it onto the wire coming from the LED. At this point you can glue or otherwise attach the spring to the end cap of the pen, drop a battery in, insert the end cap and test your creation. If you were able to use one thin wire from the LED to the end of the pen a AA battery should fit perfectly into this slot. If, like me, you had to combine to smaller wires to get the desired length its possible the joint between the wires will stop a AA from fitting into the pen. If this is the case, you can use a AAA battery, just make sure you attach the battery to the side of the pen with a little bit of bluetack to stop it rattling out of place.