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I guess nobody else wants to chime in, so here goes:

2 rail or 3 rail?

If three rail, you insulate one outside rail, for the entire length of each siding. Only put insulating pins at the ends, not at intermediate rail joints.

Use the outside rail to supply a return circuit through the LED and thence to the supply voltage of the LED's.

Tie one side of the LED D-C supply to the same wire that feeds the track return.

Whenever there is a car or train on any part of the siding, the LED will light up.

((OR))

If you need to know if a particular section of a siding is occupied, use multiple, separately-wired insulated track sections, wired as above, but with each section having its own LED. (Each section is insulated from its neighboring sections)
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