Not sure what lights you are expecting to see but if you can press the Reset so it stops flashing and when you jog the DROs change then you would seem to have things correct, certainly works fine here with your xml.
Hood

Shouldn't some of the lights be lit up on the "Port 1 Pins Current State" under the Diagnostics screen?

I have no idea, they have never made any sense to me and I never paid any attention to them when I used the parallel port.
Hood