Synchronizing all the iphones in a room wouldn't be technically challenging assuming their clocks are all set at least approximately correctly, and you just make them flash colors/patterns that are generated deterministically using the system clock.
There is no reason all phones would have the same time. I know some US phones sync the time with the carrier, which is a great function but not seen in the rest of the world.
You could use bluetooth, but then you have to switch it on.
You could use the camera to pick up the phones behind you somehow, but that would not always work.
I remember jailbreaking my first iphone and installing a app, that did just that. The colors would fade in and out based on how loud you spoke.
@andrewljohnson, If I were you I would make a short video of your app in action and post it up on youtube. I am sure that will get more people interested..
I edited the title of this post to reflect that the app is now up to 74th place in utilities. With just a little twittering, a blog post, and a post to HN, A Flashlight! is off to the races.
Hopefully, I will hear from users soon. If not, I guess I'll have to make it a rave toy as suggested by the people on this forum.
EDIT: Maybe it's not up that high. The rankings in the App Store all seem to have shifted all of a sudden, and the top 20 apps all look wrong.