Yes, the Full Moon Party (as well as others) is full of drugs, but these days it's also full of plain clothed policemen out to bust you. Be very careful if you intend to consume illicit drugs. Roadblocks are common, particularly in the week before the FMP between Thong Sala and Haad Rin. Thai police have also been known to force urine tests. Remember that the Thais have harsh penalties for drug offences and the police are working to meet their "quota". Be aware that you may not be able to bail yourself out of trouble, especially if you get transferred to Surat Thani - and that bribing Thai police will at least cut a deep hole into your travel budget, if it is possible at all. Do not keep drugs on you, in your room, or in your vehicle.
If you plan to drink at a party, make sure you have reliable transportation set up beforehand. The roads here are nothing to mess with, and too many people try to drive home because they don't have a taxi waiting. If nothing else, find a safe corner and sleep it off before you head home.
It's not a good idea to accept drinks or food from strangers; there are reported incidents of spiked drinks (from both locals and "fellow" travellers). There have been reports of LSD buckets foisted upon unsuspecting partyers in Haad Rin. Drugged drinks are often and unfortunately followed up by robbery, sexual harassment, or even (gang) rapes. The best idea is to take your own drinks and stay with your friends.
On closer inspection of the buckets sold, most liquor bottles are unsealed, so there is uncertainty about the true contents of every bottle. This may be why so many people get sick.
However a local club owner states "we use the small bottles for the buckets and it is cheaper and easier for us to re-use the small bottles. The local stockists always run out of small bottles so we often replace the contents with that from a larger bottle of the same liquor (some clubs use cheaper liquor. Ask politely at the bar for original liquor and be prepared to pay more for original liquor).
Hangovers come from dehydration. Most kids drink buckets all night, then party in the morning sun on alcohol. Best advice is to drink water regularly, even at night as it's hot and sweaty.
Before buying a bucket, check the seal of the bottle and politely ask what's in it if you are worried. Apart from that, remember the fact that buckets can be very strong and unpredictable. If you intend to drink a lot, try to have solid food beforehand, or you might "lose it" very fast.
It's advisable to leave all valuables in a safety deposit box or in your guest house owner's hands instead of taking them to the party.
Wear shoes or sandals to avoid injury from broken bottles or burning cigarettes.
If you're averse to getting knocked on the head with flaming batons, then don't venture too close to the fire poi swingers on the beach, as skillful as they may be, the fire sometimes gets out of hand and hits nearby tourists. "Fire Skipping Rope/Jump through Fire Hoop" are dangerous games provided by a few of the beach bars. Take care when participating in these games, especially if you are drunk.
If you plan to leave the island the day after the Full Moon Party, be aware that the boats are usually packed with other tourists who have the same idea. Make sure you're not getting on an overloaded boat. The same applies to taxi-boats before and after the FMP. Thais frequently overload their longtail boats and lost luggage is at your own expense. Better to get off, reclaim your money and wait for the next one.
There are many good places to stay in Ko Pha Ngan. If you want to stay close to the action, but not too close, you may choose the resorts on the "sunset side" of Haad Rin. You can stay just about anywhere on the island and still get to the Full Moon Party, so don't be afraid to venture away from Haad Rin, which is the most developed and least Thai beach of them all. There are over 30 coves and beaches on the island, each with its own distinct qualities. Check out local information to find which beach suits you.
Walk away from every potential conflict with locals. You will stand no chance and it's a surefire way to get hospitalized. Do not get inappropriately rowdy or swear at the beach bar staff. In April 2007 an Israeli tourist got stabbed to death right on the dance floor in one of the bars on Haad Rin beach. Violence is frequent. Locals will not help you in a fight and will in fact gang up on you whether you are right or wrong, and "fellow" travellers will do their best to stay out of it. If you find yourself targeted, leave the place immediately and don't come back the same night.
Compared to most of Thailand (and especially the north), citizens of Ko Pha Ngan are generally aggressive, rude, and unfriendly. Don't expect to be treated as much more than a human ATM. Beware also of other travellers who can also be pretty aggressive when drunk, male or female.
If you walk on some of the smaller backroads of the island, dogs can be a real danger. Many of the dogs you encounter will be highly territorial and unfriendly (barking, baring their teeth, getting very close), especially if it is a group of dogs. Getting bitten means an urgent flight to Bangkok to get rabies treatment, so this is important to avoid. Do not stare directly at the dogs (but do look at them every once in a while as it seems to deter them somewhat), and do not run. Try talking to them continuously in a calm and friendly voice ("what a good dog", etc.) and move slowly but surely, either away from the dog, or, if it's critical for you to pass, then as far away as possible from the dog's "home territory" (e.g., if it ran out of a house on the left side of the road, move along the right side). In an emergency, remember that they're probably as scared of you as you are of them, so any violent motion (like throwing something) will likely send them running back, but only temporarily. Do this only as a last resort.