This is an answer that I posted to a question on the [b] school. Mine was only one of several responses to the original question. If you aren't a member of the [b] school, you might want to check it out.
Point your flash at the subject like NEVER:-) Bounce the flash. Better yet, diffuse the flash. There many diffusers available, including simply putting some tissue over the flash. I use the Lightsphere. It allows you to both diffuse and bounce the flash. -- www.garyfong.com
Shoot as wide open as possible, while still keeping the depth of field that you need. Others have said to drag the shutter -- that's to allow more of the ambient light (tree lights) to register. You see, the shutter speed is not part of the exposure calculation in this shot. Your flash is putting out a blast of 1/1,000 of a sec -- maybe much faster -- so that replaces the shutter speed in the exposure calculation, but keeps the shutter open to allow the tree lights to register. I'd start at 1/30.
Gregory mentioned to turn Auto ISO off. That's important. Take a some shots at 400 and 800.
You will have to experiement, but I'd start something like this. Camera on Manual, f 3.5 -5.6, shutter 1/30, ISO 400. Flash on TTL. Use a diffuser.
Finally, get the flash off the camera, if you can.
