How does one use this thing? Is it literally only when you know that you will want to cast the card you are about to draw? You can't announce that you are casting a spell in your hand, then sac the LED to pay for it?
a) With Auriok Salvagers, generating infinite mana, then using the Salvagers to regrow a Spellbomb either to kill directly (with Pyrite) or to draw almost all your deck, play all your other creatures, then cast Time Walk and attack for lethal (depending on build.)
b) Activated in response to a tutor, Draw-7 or similar. It interacts particularly well with Infernal Tutor (as it ensures you're hellbent when the tutor resolves), but is also used with cards like Ill-Gotten Gains, Burning Wish, Timetwister/Wheel of Fortune, Ad Nauseam.
You can't use it to cast a spell in your hand (except for Madness cards.) The 'only when you could play an instant' text stops you from using the mana ability during announcement of a spell. And, post M10, you can no longer Vampiric for Ad Nauseam, then crack the Diamond in upkeep, float the mana to your draw step and cast Ad Nauseam using your Diamond mana.