SEN0158 IR light source questions (must modulate?)

I have bought these cameras to make a mouse-pointer style controller behavior for my project.  I have finally figured out a sketch that at least is ready to find blobs.  But I read somewhere that these cameras need modulated light sources, and that it cannot easily detect direct light sources, but actually needs reflected IR light?

These are some difficult restrictions, I believe people use these to track robots and stuff? I bet i can make this work with 850nm lights without reflecting them off a surface. Can someone let me know what light source methods have worked for you?  Did you need to modulate the lights? what frequency?  

I'm enclosing my sketch incase that helps.

THX!