ESP8266 Community Forum

From the docs I gather that light sleep is perfect for a device sitting idle awaiting commands.

http://www.espressif.com/sites/default/ ... s_en_0.pdf

But what commands? Is there some kind of Wake on LAN packet that must be sent first? Or is it a matter of, "I have packets, time to process them, wake up and start loop() again"?

yes, it's of the 2nd kind ...

Some report that light sleep intermittently disconnects from wifi after some time, is that a frequent concern or rare?

I'd test it but I don't have my boards in just yet.