In my experience generally the tool setter and the probes are opposite in relation to switch/active status. One is NO and the other is NC and cant share the same input pin.
Do you still have a pin or port assigned for the tool setter? That is the only thing I could think of that would cause the LED to indicate. Could be a corrupted Mach file. Have you backed up a nicely working xml lately? Maybe try a reload of Mach and the xml file. It sucks but sometimes it just gets out of control, it just becomes easier to start over.