The LS300 user guide shows a digital diagram in page 24 that may help. When the I/O green cable is set to Digital Input. It expects to have a 0VDC to 1.2 VDC to indicate the circuit is closed. However, you are using a LED on that PIN, this is preventing the voltage to drop enough. Since you are using a LED switch , perhaps using an opto transistor or opto coupler/isolator as showing in the links below could help you to accomplish that and isolate the circuit at the same time.