How does juggling work in space? The main thing you have to remember is that a ball thrown in the absence of gravity will not fall- it just goes in a straight line until something stops it. Physicist Adam Dipert is the Space Juggler. He explains how the idea came about.
See more space juggling in this YouTube playlist. -via Metafilter
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The effect likely comes not from diffraction as seen on a CD, but from thin film wave interference. The Naked Scientist (link below) has the best, quick description that I could find. Google "Oil Rainbow Effect" to get more information.
http://www.thenakedscientists.com/HTML/questions/question/1708/