Sandwiching a piece of tissue paper between 3-4 layers of bubble wrap is a great way to make a flash diffuser on a budget. I took some test shots with my 40D and it definitely works.
Slower shutter speed and lots of ambient light (room lights on)
With diffuser: 1/50 sec, f/2,8, flash power @ -1
Without diffuser: 1/50 sec, f/2.8, flash power @ -1
Without ambient light (all light coming from flash, room completely dark):
With diffuser, 1/250 sec, f/2.8, flash power @ +1
Without diffuser: 1/250 sec, f/2.8, flash power @ +1
Slower shutter speed and lots of ambient light (room lights on)
With diffuser: 1/50 sec, f/2,8, flash power @ -1
Without diffuser: 1/50 sec, f/2.8, flash power @ -1
Without ambient light (all light coming from flash, room completely dark):
With diffuser, 1/250 sec, f/2.8, flash power @ +1
Without diffuser: 1/250 sec, f/2.8, flash power @ +1