Very nice. I've used a similar effect for a few years on my homepage - http://arpad.co.uk - albeit with a far more primitive algorithm ;)

Annoyingly I didn't make a note of where I found the algorithm and I can't find the source now, but I remember being struck by its simplicity and deciding I had to find a use for it.

The meat of it is:

    z = (sum of surrounding cells) - z;
    z -= z >> 5;

Does anybody recognise it?