I would concur with the general consensus that there are plenty of dive lights out there even for a small budget, but the geek in me can't help but comment on diving with a "bagged light". (Consider this the long-winded musing-on-a-Friday version.)
Obviously, the first important thing is to have a watertight seal. Zip-top bags tend not to do this well, although some of the higher-quality bags can do fairly well. Even a well-sealed zip-top bag has a few caveats to deal with. A thicker "freezer bag" (as opposed to a standard "sandwich bag") will give you a more durable plastic, but usually at the expense of clarity at flexibility. If you're just looking for a diffuse personal "hole light", clarity's not an issue, although it'd make light signals less effective. The big issue, however, will likely be that the zip closures do not take well to sharp bends. Holding the bagged light wrong could pop the zip (or at least allow ingress of water).
Heat-seal type bags (like vacuum food sealers often are)
can provide a much more secure watertight seal, but low-quality ones (such as can be found by the discount blenders and toasters) may not provide a wide enough seal to be adequately robust. One good enough to provide effective, durable sealing is likely to be priced at a level that would make the whole "saving on a dive light" issue moot. (On the other hand, if you also wanted to take a stuffed animal down for a good squeeze, it may be worthwhile. :biggrin
Now, provided you find or engineer a workable bag-sealing system, you'll next get to think about the physics and mechanical aspects. You first thought would likely be to basically "vacuum seal" the light, but that would be problematic. As was noted above, a standard flashlight isn't built to handle the significant external pressure a dive light sustains on a perfectly mundane dive. If you vacuum seal the light, even before the pressure crushes it, turning it on and off will likely be an issue. If it's a slide switch, the plastic pressed against it will immobilize it quite effectively. If it's a pushbutton switch that is on when pressed and held, on the other hand, the water pressure will turn it on as you descend, so that works. If it's a pushbutton switch that isn't on when pressed and held, it'll be unusable.
How can you get around the crushing and switching problems? Quite simply, instead of vacuum sealing it, go the other way. Blow up the bag before you seal it. If you have the same amount of free air outside as inside (i.e. the internal volume of the light, less the batteries), it'll be "vacuum packed" at 33'/10m. If you have twice as much free air outside, it'll only get to "vacuum packed" at 66'/20m. If you're planning to go to 100'/30m, put triple the air in.
Of course, this solves the crushing problem and *may* solve the operation problem (although if there's enough air to keep it from crushing, there may be too much air to be able to operate it at a given shallower depth), but it throws in another issue. That big bag of air displaces water, and as Archimedes famously streaked, an object in a fluid is buoyed up by a force equal to the weight of the fluid it displaces. In other words, your flashlight may be considerably floaty, especially near the surface.
So, if you've managed to solve the crushing and operating problems, you still have to deal with the floating problem. Depending on just how floaty your bagged light is, you may need to put a little more weight on your weight belt, but even if it's not that bad, you've still got to hang on to a floaty bag. Entries and exits are generally taken to be the parts of the dive where many problems tend to occur, so you'll want your hands free if you need them, which means you're going to want to have some sort of "harness" for the bagged light. As the volume of the bag will change dramatically, you'll have to be a bit creative here. (Perhaps something like a belt around the middle would work, but it'd depend a lot on the light.)
*Anyway*, that's the basic concept of what it would take to use a basic flashlight on a dive. Some lights might not require quite so much work (taking a milled aluminum body LED light under might need less work, but it'd probably cost about what a dive light would have), but a nice budget dive light won't require any of it (and you'll know what you're getting).
(If you do dive with a bagged light [using a small dive light as backup, I hope], please take pictures. I can't help but think it would be quite entertaining.
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