Output 1 flashes because you have spindle relay set to output 1, Config menu, Ports and Pins, Spindle Setup Spindle relay You have that box unchecked. Even if you dont have the pins and ports asigned it will still operate the LED if your G Code calls a M3,M4 etc
Get your voltmeter and disconnect the cable from the parallel port, put the meter to 5v range and put one lead to the X axis Dir pin and the other to one of the ports 0V wires (see the Mach manual for a diag of the PP female connector) Jog the X one way then the next and your voltage should toggle between 5V and 0v as you toggle the axis direction. If that happens then put your volt meter to milli volt range and connect to the X axis Step pin and 0v, jog the X axis and you should see a voltage there, the faster you jiog the higher the voltage will be but what the voltage is is unimportant.
If both of these thiongs happen then your problem is from outside the computer, repeat the tests at the other end of the cable, if thats ok then check at breakout board etc.
Hood