I bought a bunch of LEDs for several projects, and I got clear ones because I figured that I could make them diffused if I wanted, but I couldnt make diffused clear if thats what i needed.
I have a set of 64 LEDs Im using for a wearable project, and I decided i would try diffusing them with sandpaper. I started with 400 grit, and twisting the LED in it. It took about 5 minutes to get it lightly diffused, I didnt want to spend 5 hours sanding my 64 LEDs, so I tried using the dremel with a sanding drum (about 60 grit or so), and they only took about a minute to do each, they look very opaque, but they are a bit misshaped, and rough. I havent used them yet, and as such, i cant say what way has the best results.
I may try the drill technique, that may just work.