I still doubt its an LED. It will light up like the rest of you said but LEDs where not originally meant to be used on AC Voltages. AC will break down the component LED a lot quicker than DC voltage. So it's life span would be greatly reduced. So unless this was bad engineering, then perhaps they've come out with diodes that where made for AC.

Hey Jasonbar, how about a good close up pic of this LED?
Hey, Efjayel-
Do you know how hard it is to take a good pic of an LED w/ an average point 'n' click digital camera? :] Not easy! Well, just for you, my friend, I fished through 2 trash cans before I found the LED (in the bottom of the yuckier of the 2 trashcans). I'm 99% sure that this is the LED in question and not the *other* one whose leg snapped off last night...grr...
Well, here are the 3 best pics I got. I shrunk them a bit & messed w/ brightness & contrast to try to make the anode & cathode show a bit better. It really really looks like an LED to me. I can see that the 2 wire leads end in 2 pieces inside the LED, one shaped a bit like a "7" & the other more like an "i". The red plastic package looks *just* like an LED, even with a small flat on the flange, aligned w/ 1 of the leads (indicating the negative lead).
Check it out.
Although this discussion has been cool & educational, I've decided to go w/ my plan B & use a crazy "disco" LED that cycles through all sorts of colors with all sort of frequencies & run it off my MAME PC's 5V disk drive power lines. Now, where's the smiley for ducking flying objects chucked at me? Oh, this is close enough:

Thanks,
-Jason