There are two seperate problems here, the led issue and the keymap issue.
I have never run xserver-1.4, but have had similar problems with git xservers.
For the keymap issue, i suggest you remove /usr/share/X11/xkb and reinstall xkeyboard-config, you will need xkeyboard-config for xorg-server-1.4. This solved it for me iirc.
For the led issue, this a known issue and that will most likely be fixed for the 1.4.1 xserver release.
As per today's freshest it is still dead lights for me. I switch with "XkbOptions" "grp:caps_toggle" between the two keyboard settings. It does switch, but only once - to and no fro. And no lights.
But I also noticed another more annoying issue, which can be best seen in xev. Try pressing Alt_L and Control_L in that order, and releasing them in any arbitrary order. The events will be fine. Pressing Control_L and Alt_L in that order, however, only shows Control_L pressed event. When releasing Alt_L, the event for press and release of Alt_L are shown immediately after each other. This does NOT happen when using Alt_R.
In other words, when pressing Control_L Alt_L SomeKey, I effectively get Control_L SomeKey. I use the Control_L and Alt_L combo a lot (e.g. switching desktops) and now I have to pay attention in what order I press the keys. That's really annoying!
Can anyone confirm this?
Btw, I have ctrl:swapcaps in xorg.conf, haven't tried in the non-swapped case.