rhinestones = the bane of my existance , also name this horse

[sd_dreamcrystal]

I asked this same question about one of okiegurl1981's ponies on her DA page:
she said: I took a pencil and traced around the stone onto the eye so I could make sure I had the placement right. Then, I took my dremel tool and used this attachment [link] to to sand down the eye. I started right in the middle, and then slowly moved out toward the edges of my pencil guide. I just kept doing that until it was all even, and I had a depth that the stone could set down into. Then, I used a bit of glue to hold the gem in place, and filled the gaps around the stone with some apoxie.

Hope that helps!
here are her pictures, hope know one minds me posting these?

Spoiler

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Thanks for posting that, LLL!  You saved me a bunch of typing! So basically, what she said!    One thing is, you want to make sure you're using a gem that's a good match as far as iris size.  Something too small or too big won't look right.  I suggest drilling a hole for the stone to set down in.  That really helps with the "buggy-ness" TE's can have, and it looks better and is more secure than just gluing them on. 

Here's a pic of a WIP, so you can see how I gouged the eyes out for the stones. 
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What Dremel attachment do you use for the 'hallowing out' part

[okiegurl1981]

This one:  http://www.dremel.com/en-us/Accessories/Pages/ProductDetail.aspx?pid=953 

[pyrodarknessanny]

well i ended up trying the drill again today, managed to make it work out and finised my  progect.
ill post pics in a seprate thred for the  custom. 

[Starblaze]

I know you already solved your TE dilemma, but I just wanted to share how I did my ponysona custom, StarBlaze's TEs.
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I used pearlescent paints and did the eye up like a faceted gem. It has just the effect I was going for, so I am very happy with how it turned out. I too, am not a fan of the buggy eyes, and the other TE customs I have done have been the drill/set and secure from behind method.