If you have a simple Arduino project that uses only a few pins, you might be able to shrink it down to a single 8-pin ATtiny chip. How-To: Shrinkify Your Arduino Projects video and How-To: Shrinkify Your Arduino Projects article shows you how. The best part is you can use the same Arduino code and development environment that you’re already used to.
The ideas presented on video and article are based on a tutorial from MIT Media Lab’s High-Low Tech Group that shows how you how to program an ATtiny45 or ATtiny85 microcontroller using the Arduino software and hardware. The ATtiny45 and ATtiny85 are small (8-leg), cheap ($2-3) microcontrollers that are convenient for running simple programs.