I've used a bunch of the Countycomm $1.00 lights which I doubt are using Nichia leds. Most of the ones in the slide-switch version of the light are whiter (though maybe less efficient) than the Nichias I've used in Arc and CMG lights. No idea about longevity. Besthongkong.com is selling white leds for around 0.10 each and those seem to work fine too. Is anyone really going to use a flashlight for 1000+ hours? Some cheap led driven at 25 mA (i.e. within the manufacturer's spec) is likely to outlast a Nichia driven at 70 mA (more than 200% of spec) anyway. I'm sure Don knows more about this subject than I do, but I've had the impression that if you're willing to accept a bit less than the absolute maximum possible output (e.g. you'll take 10000 mcd instead of 12000 mcd), white leds aren't anything magic any more. And really, a 20% brightness difference in a flashlight is quite hard to notice.
As for machining the leds, why is that such a big deal? We're talking about flicking away a half-millimeter ridge of plastic, not cutting through a foot of tungsten carbide. I did it by hand with a fingernail file on a led for a mod a couple nights ago and it only took a minute. With a belt sander or in a lathe, it should be doable in about as long as it takes to get the led in and out of the chuck. 20 seconds per led or 1 minute for all 3 leds should be more than plenty. Even if the labor with overhead is costing $30 an hour, that's just 50 cents going into a 20 dollar flashlight.
Try taking a Mag Solitaire apart sometime. It has quite a few more machining and assembly operations than a LED light (e.g. Arc AAA) needs, and yet Mag manages to make them in California and sell them for around $7 in retail stores including a layer of distributor profits. I have no idea where the Peak Led lights are made but I don't see anything economically unfeasible about doing it in Arizona, especially if Peak can reach some level of production economy that Arc has not yet managed to achieve.