Using some simple external circuitry and PWM, Kyle McDonald has created an inexpensive and effective guitar effects pedal. Although the Arduino board doesn't have a true digital-to-analogue converted, Kyle's creation certain works as described, for example:
Simple, inexpensive and effective could be three words to describe the results of the pedal. Building your own would be a simple weekend project and a lot of fun for the musically-inclined experimenter. To get started with your own pedal, a solid Arduino-compatible board such as the Freetronics Eleven would be a great start:
For more information on making your own pedal, see Kyle's instructions here.
