I've got a shot of picking up a NOS '06 Bianchi Castro Valley for just over half of original msrp. Anyway, it comes with a Shimano Dynamo hub and Shimano LP-R 600 headlight. From what I've read, the hub is not the best, but it is acceptable. The light, on the other hand, doesn't have the best reputation. What are some other lights that can be hooked up to this hub?

Also, I've been thinking about getting one of those led flashlights from Fenix to act as a helmet mounted light. Now for the 'noob question of the _': What do you do when it's raining?

1. Use the light and get wet?
2. Lose the light in an effort to keep dry?
3. Keep the light and wear a neoprene skull cap under the helmet?

Something else I was wondering: Why would people buy those pricey light set-ups with the battery packs, wires that need zip tied, etc., when they could spend a lot less and get nearly as much light from a couple of led flashlights?

There are a few led dynamo lights coming out that are very bright. Search for edelux and superova.
If you need really bright you can DIY your own led lights for your dynamo hub. See pilom.com or my thread at candlepowerforum.

LED flashlights? Work ok, really good solution for some people. Usually designed for throw rather than a nice even beam spread. People buy one, rave about how good they are, then buy another and another(one isn't good enough?). Most have runtimes around an hour so if you do long rides you'll be taking 2-8 sets of batteries.

In terms of generator-based headlights, see Peter White's page and Sheldon Brown's page on headlights. Depending on the amount of money you want to spend and the roads you ride upon, I would recommend (from cheapest to most expensive) :

– Lumotec Fly (no IQ) : relatively cheap at 40 $, it's a very good light to be seen, but not the best light to see your way. To illuminate your way, it works well if you ride on a dark road (i.e. no stray lights) and the pavement is dry. Still puts about twice as much light on the road than the Shimano headlight you have.

– Lumotec IQ Fly : 90-100 $ depending on configuration. About 5 times brighter than the previous one, this offers serious lighting both on dark roads, and in urban areas. It's also very visible if you use it as a safety beam in daylight, especially when riding in adverse conditions. Unless you ride a lot on totally unlit roads, you probably won't need more than this one.
The light is also visible from both sides (good) and from the top (not good, and corrected with a piece of electrical tape).

P.S. I use one on my single bike, and it's great, even in the rain.

– Schmidt E-delux and Supernova E3. Both are roughly 200 $, both should provide twice more light than the IQ Fly. But there is a catch in each case.
Like the IQ Fly, the E-delux provides a beam shaped for the road, so it means more light where you need it. The catch : supplies are still limited.
Le E3 has a round beam like most battery-driven NorthAmerican bike headlights. It means you get more light in the trees (good off road), a bit more to the sides (also good on trails), some very close to you (a mixed blessing), but maybe not more in your path than with the IQ Fly. So if you ride on roads, is it a good idea to pay twice more and not get twice more light on the road than with the IQ Fly? The round beam of the E-3 would also be more blinding to oncoming vehicles.
And I read on Peter White's page that a road version of the E-3 should be in "in September".
Both these lights have a nice compact housing... which means the headlight is not visible from the sides.
P.S. I'm longing for either the E-delux or the road version of the E-3 for my single bike; at that time, the IQ Fly will go on the tandem.