@Osgeld:Okay thank you very much! 
CrossRoads:
I think you need more than a diode - you need to have the WS2801 drive a transistor to sink current thru the LEDs.
See the figure 8 discussion on pages 9 & 10 of the datasheet.
WS2801 is still powered from 5V, the LED string with current limit resistor is powered from 12V.
Ah okay does it need an independent transistor for each color?(RBG)
I've read through those several times I'm a bit too newbie to completely understand that.
Also is my diagram wired up correctly?