This sounds good to my ears, where do I find out more about how to do this?
I'm looking at the ATtiny85 datasheet (http://www.atmel.com/images/atmel-2586-avr-8-bit-microcontroller-attiny25-attiny45-attiny85_datasheet.pdf), and I see that Timer0 is the one that supports an external clock source but unfortunately Timer1 is the one that can be run asynchronously. So, we will be forced to use Timer0 in synchronous mode. That's okay though, because section 11.3.3 / page 67 recommends that the external clock speed be no more than 6.4MHz. (That's 6.4Mhz for complete cycles -- rising edge to rising edge -- not 6.4MHz toggles!)
Assuming 6.4MHz good enough, you'll use the "Burn Bootloader" function in the Arduino IDE in conjunction with an ISP (USB ISP or Arduino as ISP) to make your ATtiny85 run at 16MHz from the internal PLL. I don't know if there's example code for exactly what you want to do, but Nick Gammon has some good info on timer manipulation: http://www.gammon.com.au/forum/?id=11504 His code is ATmega-specific, but the same principles will apply to the ATtiny, albeit with different register and bit names. The ATtiny85 register and bit information is in the datasheet here:
Section 11.9.3 page 79, TCCR0B register, CS0*x* bits for external clock
Section 11.9.7, TIMSK register, TOIE0 bit for overflow interrupt enable
I see from section 11.3.3 page 67 that the external clock cannot be prescaled, but I think that's okay. You'll just be generating a lot of interrupts when your external clock is in the MHz range. This will limit the other things you can do with your Attiny, but if you don't need to do anything else, no big deal. Your ISR will need to be tight, nothing more than incrementing an integer. Then in your main loop continually check that integer and the TCNT0 register to see if it's the right time to toggle the LED.
I'm guessing there's no chance then of just being able to clock the entire chip with this signal
Only if the slew rate (rate of clock speed change from clock to clock) is within the Atmel specifications. In that scenario, you can no longer really measure the passage of time, you're limited to counting pulses. But it sounds like that will be fine.