If you get some 1-watt or 3-watt LEDs, you can very easily make them switch from one to the other with a pushbutton switch or sliding switch. What I'd recommend is having the LED not point straight out, but instead reflect off the inside of the prop. This will light it up without blinding people. If done well, I think it could be a wonderful effect.
What you'd need is a SPDT (single-pull, double throw) switch. It's standard is many electronic devices. See the following links for examples:
(The last one there is nice because it has a center position too that is "OFF".)
All you would need to do is hook the negative battery wire up to the negative side of both LEDs, then the positive battery wire to the MIDDLE pin of the switch. Then run one wire from each side pin of the switch to the positive side of an LED. When the switch is flipped one direction, it turns on one LED. When it's flipped the other direction, it turns on the other LED.
You can optionally put in another switch to turn it off, or use a switch like the last one I linked that is off in the center position.
For the battery pack, something like this would work: http://www.sparkfun.com/products/9925
With those LEDs, they will work and be plenty bright if you just use 2xAA batteries, like that battery holder is.
Here are some LEDs that would work as well:
You'll want a base to mount them on as well, like this:
... or two of these:
It'll require a bit of soldering. You have to attach the LEDs to the base plate in 3 spots: Positive, Negative, and the Thermal Pad. If you're inexperienced with soldering, you may want to get somebody who is familiar with it to do that part.
This would probably be a total cost of about $20-30, depending on shipping costs.
I hope this helps. If you have any further questions, feel free to PM me. I'm more than happy to help.