So, Im a radio frequency electrical engineer and huge Disney geek. Ready to learn more about the MagicBands than you ever wanted to know?
How do they work??
The Disney magic bands use two basic forms of communication:
1) Short-Range or Passive RFID: Passive RFID is what you use when your tap your band onto a receiver (at Disney, usually the glowing Mickey head). This uses a tiny chip like they used to have in the old keys to the kingdom cards. It does NOT require a battery. Basically, the receiver sends out a signal, the chip modulates it and pings back an identification number that is linked into the Disney system (so it knows if you have a valid ticket or whatever). This has a range of usually 0-10 cm, the closer the better. The kiss works best because the chip is near the mickey head in the band and there is no arm or the side of the band or whatever to cause interference. It also works best when they are parallel for some chip setups. Since this is passive (no battery, no active signal), the magic bands and receiver have to be fairly close.
2) Long-Range or Active RFID: Active RFID is different, it requires a battery. Here, instead of the the MagicBand just reacting to a receiver, it is sending at a signal at all times and the receiver merely listens. It has a range of 0-100 METERS depending on the specific design and battery. The MagicBand batteries are fairly small so I suspect its something like 25-50 meter range but who knows. The receiver can read thousands of signals at once. This is what is used for memory maker pictures and videos. The band could run out of battery but Ive heard rumors that the lifetime of a MagicBand is around 2 to 3 years.
You can see a teardown of the band here:
http://atdisneyagain.com/2014/01/27/making-the-band-magicband-teardown-and-more/
Now, to the question of paint/rhinestones on the magic band, the only real problem I could foresee is a really huge rhinestone or bead or something that physically keeps the band from getting close to the reader or aligning properly. Paint, metallic paint, nail polish, etc. have almost no interference at the high frequencies used by this band. So, as long as there is nothing super bulky on the band, all should be fine. I personally have used metallic paint on multiple bands and there were no problems at all.