Hmm. I like the lights and I like the car, but I'm not sure I like that. If you did it, you'd need some kind of housing on the inside of the fender to protect the wiring connections. You'd also have to be pretty sure of your clearances as the tire moves within the fender.
I like the look but I wouldn't do it for the reasons 5window said. If you do it, like he said, be very sure of your clearances, and I would add, run a ground wire from the housing to the frame to be sure of having a good ground rather than counting on it grounding through the fender. If you don't mind the LED look, there are modern repro LED versions of the '50 Pontiac taillight that you can mount to any flat surface and not have anything protruding into the wheel well.
How would you put the blue dots in LED lights? As for the goats ass, I have heard in some parts of the country they put other things in goats asses