Designing custom LED bar as a replacement for standard headlight
I am not sure which LED strip to chose, so if you have any suggestions
  they are welcome.


If you need to make a custom light source I would highly recommend the Luxeon Color C Line.  Very small, very bright, and have good color mixing lenses. 

DATASHEET: Luxeon Color C






  Also, what other ways would you suggest to achieve the diffusion of
  light?


A light pipe would probably be your best bet.  They are lit with an LED at the end of the pipe. 

I have a Camero 2SS with light pipes in the door.  I found a source (dia. probably too small for you) here: Light Pipe Parts

Could spark an idea.  Do an image search  for "Light Pipe LED"

It would likely be less expensive to find off the shelf parts. 

Putting a strip in a tube may not give the best look.  You would need very good diffusion (double in and outside surfaces) to obscure the individual LEDs.  Find an good looking off the shelf strip may be difficult.  The LEDs would need to be spaced close together.  



LINK: Short Light Pipe Video



Camero Interior Light Pipes