WARNING: This post gives instructions which create potential fire and health hazards. Please use common sense if you try these techniques, and DO NOT try them inside the house, garage, or any other dwelling structure. How about a non-flammable gravel pit.
Overview: This post will hopefully guide you through heat treating pick blanks to make them more shapeable, then restoring the heat treatment to the picks once they are shaped to create long lasting and durable lockpicks. High-carbon spring steel that picks are usually made of is very hard on grinders, dremel bits, and cutting tools. By removing the heat treatment you will be able to more easily shape the picks, and save some wear and tear on your tools as well.
Tools you will need:
1.) some long pliers to hold the picks. Tongs work, but nothing too short or you'll roast your fingers.
2.) a heat source. I've used a hot bed of coals in my fireplace before. I've also used my Camping stove, a propane torch, or even the gas grille. The primary thing to shoot for in a heat source is that it heats the entire pick as uniformly as possible. If it isn't heated uniformly then the heat treatment will not be as good as it could be, leading to a shorter than possible pick life (see the pic graveyard post for real tearjerkers ..

My personal favorite heat source is a camp stove running off of propane, as it gives a nice long flame and heats the pick pretty well.
3.) An oil bath. This consists of some viscous oil in a durable (and flame proof) metal container. Do NOT use plastic or paper, or anything flammable. An old soup can should work fine if it's large enough. For the oil, any oil will work, from cooking oil to motor oil. I usually use motor oil as I have a bunch of it laying around out in the garage.
4.) Some means of insulation for very high temperatures. I use a large 6" pyrex test tube wrapped in fiberglass insulation. The insulation is not strictly necessary, but it helps make the heat treatment more reliable. To make a decent insulation vessel, take a large cigar tube or pyrex test tube (large enough to fit an entire pick in), and wrap 2 layers of fiberglass insulation around it. Be sure to cover the bottom of the tube, and have an extra flap for the top of the tube as well. Stick the whole apparatus into a medium sized soup/coffee can so that it stands upright, ready to accept a pick. To use it, drop the pick in and place a piece of insulation over the opening.
Step 1:
Okay have everything? Great. Now you'll need to get the pick blanks you want to heat treat, and heat it up to a nice cherry red throughout the entire pick using your heat source. Once it's nice and cherry red (try to keep it from turning bright orange, but if it does it's okay at this stage) remove it from the heat, and quickly put it into the insulation vessel. Cover the opening with some insulation and let the pick cool to room temperature slowly. This should take anywhere from 10-15 minutes. If you're heat treating multiple picks, it's okay to do the others at the same time, adding them to the vessel. This will both help the other picks cool more slowly (this is good), and cut down on the overall time needed to heat treat an entire homemade pick set. The picks have such a low heat capacity that adding more picks to the insulation container is not likely to locally heat any pick to a large degree, and thus will not result in locally heat treated areas on the pick blanks. Be sure to let all the pick blanks cool to room temperature as slowly as possible, keeping the insulation on the vessel.
Once the pick blanks are cooled, they will have lost all the heat treatment they had. Now proceed to shape the blanks using files, grinders, and cutters. Once the blanks are shaped, proceed to the next step.
Assuming you only used grinders and cutting tools to shape the pick, you will not have locally work hardened the steel much at all. But if you were hard on the grinder and the picks got hot enough to discolor during shaping, you'll need to repeat step 1 again for top results. Repeating step 1 gives as uniform a non-heat treatment as possible, upon which we will shortly build a strong durable heat treatment. If during grinding you heated the picks significantly you will most likely have air-cooled some parts of the pick, which makes them more brittle than when cooled in the insulation jar.
While the picks are cooling, you can prepare the oil bath. Definitely do this part outside! Get a shallow pan large enough to hold the picks, and fill it with about 1-2" of oil. The pan must not be plastic or paper. Use only metal! A bread pan or toaster-oven pan (if deep enough) are likely candidates for this part. Once the oil bath is prepared, put it in a non-flammable area as it will probably be bursting into flames shortly.
Step 2: Restoring the heat treatment to the steel
To restore the heat treatment to the picks, you will need to heat each pick up to a bright cherry red again (definitely not orangish this time!), then quickly drop it into the oil bath. Do this one at a time, and make sure the oil bath is cool enough to touch between the pick quenching sessions. Depending on the oil you use, it might burst into flames when you drop the heated pick in. So do this carefully and wear eye protection and gloves. BE CAREFUL. If you're not comfortable using oil, you can use a water bath instead. But this is not as desirable as an oil quench, though it is somewhat safer.
After this step, the steel is very brittle and you must be careful when handling the picks to avoid fracturing them. I have broken many picks between this step and step 3, which is a real pain.
Step 3: Prepare the now heat-treated picks for annealing.
The picks after step 2 are so brittle that we need to remove some of the heat treatment in order to make them durable for use as lockpicks. To do this, the metal must be clean and free of soot or ashes. It must be clean so that you can observe even slight color changes in the steel. With steel as thin as picks, these color changes can be almost instantaneous and you can see them much easier on clean steel. To clean the picks, use light sanding or a wire brush. Once you can see silver steel then it's probably good enough. Clean each pick, and then fire up the heat source again.
Step 4: Annealing the picks
Annealing the picks is perhaps the most critical step in this process. If you have done everything else right, this will make the picks sturdy and rugged, much like factory spring steel picks. To anneal the picks, heat them up SLOWLY until you can just start to observe a color change from no color to a dark purple / bluish color. You need to heat the entire pick to this dark purple / bluish color, WITHOUT overheating it. If at any point you overheat the pick, you will have to start over again to get a proper heat treatment. This step sounds easy, but getting the whole pick to the proper color without overheating it is harder than it sounds.
Once you have established the proper color of the pick, drop it into the insulation jar and allow it to slowly cool to room temperature. It's okay to add more picks to the jar as you go, so you don't have to wait for each to cool individually.
Step 5: Polishing the picks
Lightly sand the heat treated picks and polish them up with your method of choice. I prefer to use a polishing wheel on my dremell, as it is quick and easy. Once they're polished add a light coat of oil (unless it's stainless steel, then don't bother) to keep the rust away, and you're done! If everything went as plan, these picks will now last you a lifetime, and should be strong, springy, and durable.