You can buy a metal hole saw from home depot or lowes. Find out the size of the lights you are buying, double check the diameter at the widest point that will be sticking through the bumper and try to get that size hole saw or 1/8'' bigger at the MOST. If you get the exact size, the hole can be sanded to the tight fit you want. You are going to have to sand it pretty good ayway to clean up the burrs. The hole saw goes in your drill, it will be whatever diameter you want, and have a drillbit that sticks out the center that acts as you guide while cutting the hole.(you must have one with a drill bit guide in it.) Measure from many different points to assure it is in the right place and drill a small hole where the center of the light will go, then take the hole saw and drill out your hold. The small hole you just drilled will make way for the drill bit that goes in your hole saw.
The hardest part I encountered was measuring where the light would go since I mounted the light to a bumper bracket. I wanted to make sure it was even on both sides. You'll see what I am talking about in the pics...
as for the type of light, I can't remember. I know I searched online FOREVER and could not find what I liked, then I stumbled on a set at Pep Boys that they didn't have last time I was there.
I also looked unsuccessfuly everywhere for some type of grommet so I bought some rubber tubing and spliced it to go around the hole and epoxyed it on. (using this you may want a larger hole, I used a 2 1/8" hole saw for a 2" light. The only thing I havent done yet is fill in the little gap in my self made grommet with some black epoxy.
sorry for the long rambling post.