This is a method that I have tried and tested in 1.2.5 and it really does work.

You will need;
1x item you want to duplicate.
1x bucket of water
14x obsidian
1x flint and steel.
1x crafting bench

1) First of all you need to dig a nine long, one wide trench.

2) Put water at one end of the trench, it should stop on the second last block.

3) Build a portal so that the bottom obsidian layer is at the same level as the level that the water is on, so that you could walk through the water into the portal. Remember, the water needs to run towards the portal, not away from it.

4) Put the crafting bench somewhere on the side so that you can access it from inside your trench.

5) Place yourself inside the trench and right click the crafting bench.

6) Place the item you want to be duplicated inside the crafting bench, while still being pushed by the water.

7) As you go through the portal (don't go to the nether) the item that was in the crafting bench will be chucked out as two blocks, one normal, the other an infinite block/item.

If you click on the infinite item in your inventory, and then right click, then its 'power' will commence.

You now have an unlimited supply of anything that you have at least one of, you have beaten the game, well done :D

This works in single player, and some multiplayer servers.