It's a moto thing. Funlights is a term used to describe three different light features on Moto phones: ringlights flash lights when the phone rings, rhythm Lights flash to the sounds received by the phones microphone, and event lights flash when you get a text message, mms, or when the phone is charging. All three of these lights features are called funlights, but each one is separate and requires a separate modification to the standard V3 RAZR.
During the keynote, Steve talked about the different sides of the iPhone. When he got to the top of the phone he said:
So let’s take a look at the top now. We’ve got a headset jack. 3.5 millimeter all your iPod headphones fit right in. We’ve got a place, a little tray for your SIM card, and we’ve got one switch for sleep and wake. Push it to go to sleep, push it to wake up.
I don't know why it couldn't. LEDs use very little power...
Depending on how Apple has it set it up to work, if the display turns on/flashes when you get a call than it really wouldn't make a difference power wise.... Apple could use the backlight from the LCD.