I remember seeing the Dragon Labs Dragonfish Glowing Form Demo[1] when it first came out, and it always stuck in my head. They implement the effect by using a rather large background image and a mask image and move the background image around via Javascript. I was inspired and wanted to see how close I could get with CSS3.I recommend using a Webkit browser [and you can see an alternate version of the animation on Firefox 4].
[1] http://labs.dragoninteractive.com/panel/demo/