Design and art student Billy Ryu has been experimenting with the Arduino platform and used the hardware to help with his work. One example of this is the creation of a "tunnel book", which consists of several scenes from a story which are illustrated and have LEDs behind certain elements of each scene.
Once activated by the reader, the LEDs illuminate in order as the story progresses - which adds a layer of realism to the story, especially when read to children or small groups. An example of this is shown in the following video:
If you're looking to make more creative designs with LEDs, consider the Freetronics RGBLED: full colour module. It includes a bright RGB LED on the top of the board and a WS2801 constant-current, addressable, multi-channel LED driver on the back. This smart module can be daisy-chained, so you can connect a number of these together in a string and drive each of the module colours individually from your microcontroller. For more information and to order, visit the product page.