I use to make these all the time - I had a table top drill press (cost apprx. $40) and a diamond bit that I used to drill a 1" hole in the back of the block. We put the table top drill press in my sink and ran a easy stream of water on the surface of the block to prevent cracking of the block. I know, electricity and water - not good but the cord wasn't in the water. for my blocks, I paid around $4 for the block and used spray on Kilz on the edges and back to help light the whole block. I printed on Avery Sticker paper, attached it to the block and then put a clear laminating sheet over the printed sticker paper. lasts for.ever!!
I use a single bulb light like those used in ceramic houses in mine and put things like scrapbook pages/photos/etc. on the front. This was for a baby gift.
I never cared for the strands of lights used in the blocks - it was cute for a "present" block light with a giant bow but it never lit up the block for other styles of blocks.