Never mind. I saw this in the forums after I submitted my question:
"hey everyone. try this before you make trips to the store. turn off the light in your settings and reset your phone. (hold power and home until the apple logo comes up). then when the phone has started back up, turn the light on again and test it ! ( send yourself a text and turn off your screen. you should get the flash when you receive your msg!)
keep in mind though it doesnt flash until you have your screen off.
i think the light must glitch out if you change the flash settings in your camera- and the program requires a restart. hopefully apple fixes this bug (:"
Did this and it worked =)