My son and his nerdy friend have just had an indepth discussion about it - My son assures me it does work because he's seen it on the internet so it must be true. They've come to the conclusion that all flies need to be facing the same direction on the edge of the CD for it to work properly. Apparently chilling the flies in the freezer for a small amount of time helps with the handling process and they come to life as they thaw.
It even rates a mention in this useful link - 101 Things to do with CD's.
