I love Christmas lights, too! I'd never actually considered which were the most ecologically friendly to use, but there are a lot of options!
*Where are they made and their resources sourced? If they are made overseas and shipped over here, that's a lot of fossil fuels being used in their construction.
* What are they made of? Are glass bulbs better than plastic ones? I would think glass would be better as it's not a fossil fuel. But, if the bulbs keep breaking an have to be replaced, that's a lot of waste, too, and might outweigh the downsides of plastic.
* How are they powered? There's little "fairy" lights that are run by solar power and have the advantage of not using any fossil fuels or money to run.
* How long lasting are they? If the bulbs or wires have to be replaced every few years, that's a lot of money and resources going into manufacturing new bulbs.
* Are they incandescent or LED? LED has the advantage of using less electricity and having a longer lifespan, but may take more resources to be made. Also, incandescent bulbs can be used on sensitive trees to keep them warm in freezing temperatures.
* Which leads to the question of, what are they being used for? If they are replacing or supplementing indoor light, incandescent might be nice, for all the reasons Paul has mentioned. But, if they are outside just sitting on a house, maybe LEDs would be better?
* Can you stand the colors? I find the blues and purples of LED lights generally really painful on my eyes. The spectrum of light that they produce is just painful, and not as pretty. I much prefer the warmer tones of incandecent lights. Though, I don't mind the red LED lights, and actually use some as night lights in my kids' rooms. It's a nice, dim, sleepy color that still allows someone to see.
Anyway, I'd love to see what other's have to say about what might be the best Christmas lights from a permaculture viewpoint!