Grunt Birthday Party is a silver skull. It is the second skull on Crow's Bridge. After clearing the Barracks, you'll be sent out to meet the Arbiter. You'll drop down a short, narrow shaft at the end of a corridor and find yourself in a large tunnel with several pipes interconnecting from the left and right sides from which Drones will emerge-- they'll fly across from one pipe to the other in front of you.
Go to the end of the tunnel but don't drop down. Instead, look down to see a very narrow ledge marked with a green arrow just below the lip of the tunnel. Drop carefully down onto that ledge, turn around, and you'll see a crawlspace underneath the floor of the tunnel. At the end of it is the Grunt Birthday Skull.
As a silver skull it offers no campaign scoring bonus. However, when you kill Grunts with headshots with this skull activated, you'll trigger an explosion of confetti and children screaming "yay!" which makes playing Halo a lot more festive.
Unlike its Halo 2 counterpart, there is no circle of Grunts dancing in unison around it. More's the pity-- it seems most skulls in Halo 3 are far more functional, but their placement within levels is far more businesslike.
Although the effect is entirely cosmetic and far less drastic than in Halo 2, I still prefer playing with it on rather than off; you get quicker confirmation of when you're scoring headshots (at least on Grunts) without moving your eyes to the corner of the screen where the medals appear when campaign scoring is on.