Update: When I published this instructable years ago, LEDs were quite a bit more expensive than they are today. If you find yourself with a tangled up set of Christmas lights, this may be a good way to salvage them. With the current cost of LEDs, the only reason I would recommend grabbing a set of new lights to cannibalize would be if you like/need the shape of the diffusors for an aesthetic purpose. One of the best ways to buy LEDs (IMHO) is Ebay. If you go with an international seller, just know that it may take a month to get your LEDs through customs.
Lets face it, electronics aren't cheap. High quality, high brightness LEDs are expensive and hard to find most places.
I have a solution. How about great LEDs that only cost 6 cents a piece new?
Wait until after Christmas and bombard your local hardware store for their "after-Christmas Clearance" sales. You can find strands and strands of LED Christmas lights for 75% off normal, which means you spend about $3 for 50 LEDs. That saves you about $22.5 if you were to buy similar LED's at online retailers. Your LEDs cost you 13% of what they would before. 6 cents for mine vs $1.50 retail.
I like to do things visually, be sure to look at all of the pictures and the image notes for in depth comments and hints to make your life easier and this instructable better!
Step 1: Materials
-LED Christmas lights
-2 large coins
-Time, lots of time......
Step 2: Prepare the Strand
If you lay out the chord and look closely, you'll find a few LEDs with three wires sticking out. Because LED's can only use electricity running one direction, and AC current (what your wall outlet puts out) runs in two directions. Two of the wires on the LED are directly connected as to let current flow backwards through another set of LEDs and allow the LEDs to function.
These LEDs don't let us unravel the LEDs from the rest of the strand very easily, so we'll need to cut off the outlet/plug as well as the 3 wire LEDs. Set them aside, we can use them later.
Step 3: Unravel the Strand
-Unravel the single LED strand from the two power strands - it makes for less tangles
-Keep tidy...bundle and tie the LED strand as you go, also makes for less tangles
-Don't pull, twist apart the strands...again, this will lead to less tangles and knots
You will reach another two or three 3-wire LED's along the way, so keep those wire strippers/cutters out.
Step 4: Cut and Strip
It might be smart to leave some of these LEDs in sets of 3 or four in case you need them for a later project that way - it saves time by not having to solder together strings of lights.
After you get all of the LEDs separated, you'll need to strip the sheathing off the wires.
A good rule of thumb is to strip off one half the diameter (ie the radius) of a penny. This will give you plenty of extra space for twisting, soldering, or what ever you'll be doing to the wires.
If you plan on using these on a breadboard, you'll either want to strip less off (see the next step) or solder on a solid core 22 GA wire.
Step 5: Do the Twist!
This will also make it easier to use with breadboards as well, though you might want to cut them shorter to make it easier.
Step 6: Test the Leads
I'm using my Arduino Mega fed by a wall-wart as a power source. With my particular LEDs, I don't need to use resistors with my power source, but you should use resistors between your VCC and your LED.
To make testing the LEDs easier and faster, I've wrapped and taped wires around two US quarters (any large coin will do) to give me a larger contact points. One of the wires has been labeled with a white bit of electrical tape to signify it is the VCC and the other is the ground.
You'll need to test every single LED and put a small piece of white electrical tape around the positive lead.