I've seen this a few times before. I believe it is called irisation. When cloud particles are close together and very uniform in size they refract the light just like a prizm would. It is also basically the same iridescent effect that is seen on soap bubbles.
Posted by Andrew Yip on January 12, 2009 at 11:18 AM
Discussion
4 replieshttp://en.wikipedia.org/wiki/Sun_dog
http://en.wikipedia.org/wiki/Irisation