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The Malibu light transformers are 12V AC and not DC current, as explained here in their FAQ. It's still low voltage and as safe as 12V DC, but LEDs are not designed to work with AC. The lights will probably light up, but depending on the quality of the LED they may flicker or burnout much quicker.

You will see a few drop-in LED "bulbs" that screw into regular 110V AC light sockets. These have rectifiers built in that change the AC current to DC current. This kind of defeats the purpose of running low wattage lines in the yard. You would still be running 110V AC extension cords everywhere to power these lights. They would use less energy than a standard bulb. The LED Center has good explanation on the use of rectifiers and LEDs.

I would stick with the PC power supply for large runs of home made LEDS since they can be bought for as little as $25.00 new. If you are only running a few spotlights, then a few wall warts would be fine. You don't have to run the LEDs at 12v. You could run them as low as 5 volts depending on how you wired them.

You can use the LED Center's Calculator/Wizard to help design the circuit you want to build. It will even display a wiring diagram that you can just copy. Poke around the site, it has a LOT of good information about the use of LEDS.
 

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you can water proof with these ziploc containers. you can flip them over and mount the jacks to the top (bottom that is flipped over) maybe a little silicone if needed. you can drill holes in the lid and have the connections up off the ground inside the container. they are only a few dollars for like five of them.

http://www.ziploc.com/Products/Pages/ContainersSmartSnapSeal.aspx
Yep, place the connections inside the ziploc or glad containers, seal the holes, smear Amazon.com: PERMATEX DIELECTRIC GREASE - PERMATEX - 22058: [email protected]@[email protected]@http://ecx.images-amazon.com/images/I/[email protected]@[email protected]@51rVXlx1OVL over the connections (same stuff the auto parts store sells you to coat your taillight bulbs), and then close it up. The grease will keep the water out of the connection, plus keep the contacts from corroding. You might be able to just coat the connections in the grease alone, if you keep the connection up off of the ground.
 

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I have read through it and it is very informative.

Being new at the whole LED scheme, I don't know much about resistors. I can figure out how much they are for through a calculator I believe, but when soldering them on, do they have to be directional and if so how do you know which end is which?

I have a feeling i am going to screw up the polarity and mess up the lights in the process.

I am also looking forward to the power supply hack. That intrigues me right now.
Use the LED Array calculator here to calculate the proper resistor needed. The calculator will also generate a wiring diagram for you.

Don't worry about the orientation of the resistor. Current can flow either way through the resistor itself, so you can't install it backwards. As far as which lead of the LED to solder to, I generally attach to the negative lead. Not sure if it really matters. Just make sure which ever lead you decide to use, you use that on all of the LEDs in the circuit.

Plus, when you are looking at an LED you will notice that the leads are of different lengths. The shorter lead is the negative, or cathode lead. The other is the positive, or anode lead. Also, when using the standard round LEDs, there is a round ring around the base of the LED. This ring has a flat spot next to the negative lead of the LED.
 
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