There is NO other way to get a good, clean hole in my experience. I have 4 different sizes, and have been using them for years and years without sharpening even when doing lots of sheet aluminum holes (1/8"!!)
I have far too much to say about sound controlled lighting effects, since it's how I make a lot of my money.
In my experience, the EASIEST, and the best at the same time is to use a dedicated chip to do the heavy lifting on the audio processing. I have hundreds of the MSGEQ7 chip, and there are easily purchased shields for the Arduino that can make it absurdly easy to integrate them into any project. spark fun sells one called the Spectrum Analyzer shield. One of those and some very simple code (more simple than yours) can help you do just about anything and you can have the added benefit of being able to trivially base your laser movements on any of 7 bands of audio. This helps for making the project bass or kick responsive. If you search for the msgeq7 on this forum you'll find lots of information, or if you want you can message me, and I'll happily share all the code you like.
If you wanted to connect your device to a PC you could use PROCESSING with the MINIM module to do even more!
FWIW I'm the one with the initial bug report on this one, and the patch didn't work as an SVN patch, but I was able to modify the referenced line of code, and adding the SPI_A(0); on line 422 worked.
Yup - it's a winner. For lower power stuff, look at their CAT4109.
I've been driving ~10W here:
They're efficient enough that I put THREE of them on a 5cmx5cm board with only a solid GP and a small heatsink each. Very small. Like the kind used for ram.
Use Processing + minim to detect / measure the audio (google: processing minim visualizer) Use Processing to send the light data to the Arduino via serial (google: processing arduino communication serial)
Cheater version: http://www.openprocessing.org/sketch/5989 Note that instead of manipulating the graphic display, you'd just send the appropriate levels to your arduino.
And now that's my fall-back. I can chuck a small RE magnet fragment behind the main stone and use a hall effect sensor just under. I'm also remembering the small glass rfid ampoules. I've got a huge cache of readers...
I'm going to step back for a moment and re-think my original ring-as-conductor bit.
IF I were to assume gold as the conductor (and I safely can), I can determine the conductivity and be very, very careful to limit the current to the levels that I won't have to worry about corrosion, at least unless the ring is left there for months. If I were to pull the current down into the 10mA range, AND send pulses every second or so, it would have VERY little chance of being an issue.
That has me back to: Round base. Arduino inside to send / receive pulses. Perhaps some more fun electronics inside for any gimmick I come up with. Hollow pole with wires run up for LED. Since the current necessary to run the LED isn't going through the ring itself, it shouldn't cause the corrosion. At the bottom of the pole are two pads. Split washers would do it. Heck, conductive fabric wrapped AROUND split washers (for a soft landing) would do the trick.