I modified Chuck's diagram to reflect my understanding of the illuminated switch in question.
If this is what it is, I vote against using the switch's internal LED to indicate power at the transformer OUTPUT. Why? I can't see the guts of the switch, but I suspect the internal connections from the terminals are bare wires (uninsulated). This means your 120V house AC wiring and the 18V AC train wiring would be in close quarters. These are meant to be isolated circuits for all the right reasons (e.g., safety).
Instead, I vote for whoever said to add a 2nd LED which albeit means drilling a 3mm hole in the case...and then adding another few pennies of components (resistor, diode, 3mm round LED) powered by the 18V AC output.