Actually I always found the pulsating sleep light to be incredibly annoying at night in a dark room when I was going to bed. It's very nice having a MacBook Air with no sleep indicator now.
A blinking notification light on the iPhone would be very annoying, not to mention unhelpful since it wouldn't tell you whether you had a new voicemail from someone important or whether someone commented on your LOLCAT photo on Facebook. (And even if it did differentiate between a call and an email, it still wouldn't tell you who they were from...which means you'd again have to check anyway.)
One would think that if notification light is implemented, there would be the option to turn it off. If you hate annoying blinks, problem solved.
For those who want them, I would make the light customizable. For example, only people in a blue blinking group will trigger the blue blinking LED. There are all sort of creative way they can make it so that the lights are customizable to the infinite degree: color, blink rate, Morse code. And it can be made really simple to customize to. For example, to set it to blink a Morse code, just enter a sentence in the setting, for example, "Bart called."
Back to reality, I remembered depending on my phone as a pager greatly when I first switched over from a PalmOS phone to an iPhone, and find it unsettling that there was no way to find out unless I turned on the iPhone screen. I would find LED notification light useful. And not, the option to turn on the flash for notification doesn't work for me. You get the same number of notification as the screen or vibrate/ring before it stops, unlike a true LED notification where it blinks periodically until you acknowledge it. If you find it annoying, then configure it to your liking (2 hours max, for example).