1. Is it really worth going to dealextreme for low cost high powered flashlights, or can one do as well (or nearly as well) at wal-mart??
Yes, definitely. Check the lumen output. No Wal-Mart lights are truly bright. You can get a much brighter light from Hong Kong for the same scratch. Deal Extreme is cheap w/ free shipping. Only negative is a couple weeks shipping time.
4. This one is more philosophical....if the technology for high-powered LED flashlights is so good and (relatively) inexpensive, why haven't the bike light manufacturers caught on and modified it for bike-specific lights??
They are being made. It's just early in the evolution, so they are high priced, for now (think $500 VCR in 1979). Competition will drive down prices eventually. But you can make your own for a decent price right now (or in 2 weeks, to be specific...). good luck