We don't design LEDs into our own boards, and we explicitly remove them from COTS boards that we use. Generally speaking the diffusers on LEDs outgas, meaning a) they are depositing materials on your spacecraft surfaces (bad) and b) could result in a shorting risk (also bad). There may be space-grade LEDs that big-space (think Hubble, JWST, Voyagers, etc.) use but I would be surprised. There's simply no need.
"Is it plugged in? Is it turned on? Is it on frequency?" solves about 99% of basic device connection issues. An LED will make one very short portion of that slightly shorter, and then only when testing on the bench, since you can't see it as soon as you box it up. As soon as you can talk to a device, you are able to run a long form functional test on it, exercising every part of the design and ensuring everything is working correctly. If it passes, you're good. If it fails, you pull the unit.
For ground support equipment, yeah sure, throw an LED on every rail and switch output.