A few tips:
1) You'll want to spend a lot of time thinking and planning about how you're going to do everything. You'll also most likely end up having to take a few parts from the original case so that it can hold together.
2) Before you drill or dremel anything, measure and actually try to fit the hardware in there first. When I did my tower conversion, the motherboard would not fit with the harddrive rack, and it would bump into the processor. I eventually removed the rack and mounted it about the power supply.
3) If you screw up, remember. Epoxy is your friend. (but it can also be a nightmare. make sure your epoxy is 100% dry before you get any hardware near it!)
As far as the hardrive LED goes...it sounds to me like the wires are probably reversed or something.