Electronic – How do alternating Christmas tree lights work

I just saw a great and simple project that does just this:

http://www.youtube.com/watch?list=PLFA57ACAC0F0DE0D1&feature=player_detailpage&v=cwiLQWJq2LQ

The project is by Alan Yates: http://www.vk2zay.net/

As I understand it, it uses a high impedance gate of a JFET to detect fluctuations in the E-field in the wires due to noise on the mains. The signal is amplified using a BJT to make sound on a piezoelectric speaker. If a light is burned out it the E-field will exist on the wire going into the light, but, not on its exit wire. Using this principal it is easy to locate the burned light. He applies this to incandescent light string, but, the same principal would apply to an LED string.

In your actual circuit, have you connected the wires and the LED leads at the junctions indicated by the black circles, or have you connected them wherever the lines overlap in your schematic diagram?

The correct reading of the schematic is to only have connections where indicated by the junction indicators (black filled circles). If you do so, then the third scenario in your diagram does not exist - the wires going horizontally and vertically do not actually touch at all.

One way to visualize this: The horizontal wires are all on the plane of your work table, the vertical wires are all in a plane floating an inch above the table, and the LEDs are the only connections between these two sets, and the only connections are the black circles.

You are correct, electricity will follow a path of least resistance to the greatest extent. In the schematic, there is no path of least resistance, i.e. short-circuit, between row and column wires, since no junctions are indicated. If you have interconnected the row and column wires, disconnect them now. Then, as you will see, the only path that allows electricity flow is through the respective diode / LED.