1) Turn off Boxed DRO's and Graphics in General Config, and restart Mach3.
2) You can't put LED's over image buttons and have them work reliably.
What you need to do is incorporate create a dual state LED image that contains both the button and LED.
Make that your LED, and place it first.
Then, on top of the LED, place an image button with a transparent (blank) image. It can be a small 10 x 10 pixel .png.