I’m a great fan of “stupidly” simple items (fewer things that can go wrong). The idea isn’t mine -- I used Rainmaker’s instructions. http://www.trailquest.net/TQaltgear.html#LED
There are several "encapsulation" ideas on Rainmaker's site. I used Method #2 first and afterwards dipped the whole thing in a kind of rubbery paint (thinned it a little). I don’t know the word but it’s used for waterproofing roofs. After letting drip down the excessive paint I only had to wipe off the LED “bulb”. If you go this route, make sure to use as little of the tape as possible; if you use too much, it will either show the wrinkles, or you need too much paint (both -too much tape and too much paint- will unnecessarily increase the weight).
It would be a bit more complicated to turn it into a headlamp because, as you mentioned, it doesn’t stay on if you don’t hold it down -I think you already supposed so-. This is my back-up lamp. My primary one is a Photon Freedom Micro, sewn to my hat (already posted some pictures of the way it’s attached -- could repeat if required). If you’d want the light to stay on, have a look at this (no doubt it will be “a lot” heavier): http://www.instructables.com/id/Make-A-Mini-LED-Light/