How about using a light strip like the Philips power core?

do you mean something like this:

http://ledneonlight.com/index.php?main_page=index&cPath=11_60&zenid=aecaa133080f7544b93658145eb44b5c

I must say I'm not real thrilled about cutting the wood cabinet to install the cree. What length would you recommend and do you know if the lutron DVSCCL-153P is compatible with this fixture? I already purchased this dimmer based on lutron's rec thinking I was going to install the cree.

That could work as a solution. However, you need a low voltage electronic dimmer. I don't think the DVSCCL-153P would be suitable. Ask Lutron.

I would go with a line voltage LED solution like that in the link below.

Here is a link that might be useful: LED power cove

As for the recommended length, I would estimate based on
a. The total light output for the strip.
b. The estimated output per sq ft and do a calculation for just the sink area alone.

I would venture that the light will be a single strip with a length between 2' to 3'.

Thanks for the info but this is not within the budget. Do you have any other suggestions?

T5 fluorescent?
Or a LED panel light?

The DW does not want a fluorescent, so I guess I will just have to cut the cabinet.

Noticed that you have experience with the cree LR6. Would this provide to much light or would it be better to use the LR4? I would rather cut a 4" over a 6" hole.

The LR6 is brighter than the LR4 or CR6. All the Cree lights are dimmable.

The LR4 (entire package of trim, can, light costs ~ $160)

I would explore the possibility of using either a LED strip or panel before cutting up the cabinet.

I've included a link to a led panel manufacturer below as an example. There are many more.

Alternatives to installing a recessed light can in a cabinet
a. Puck lighting - LED/ Xenon/ Halogen
b. Strip lighting - LED/ fluorescent/ Xenon /Halogen
i. Exposed, shining directly down.
ii. Configured as cove lighting - the light source is not directly viewable. Light source is probably either LED or fluorescent. Will require quite a bit of woodworking to get right.
c. LED panel lighting - edge lit or a layer of lexan covering the led elements. Mostly low voltage. Edge lit panels provides the equivalent of cove lighting in a tight space.
d. EL (Electroluminescent) lighting panel.

The most practical choices are a. through c.

Here is a link that might be useful: luminous film price list