Hrmm. I tried my DCS-935L here with FW 1.06.02 and via the webUI I go to maintenance and then select LED control off and the apply and the LED on the back turns right off. I select normal and it comes right back on. Seems to be working fine here.
Mind you I probably resetted mine a few times doing other stuff. If you had a previous version and upgraded without resetting, there might be some lingering variables that are interfering. I would say log into the mydlink portal http://mydlink.com and then select the camera and remove it from your account. This will remove and reset the camera. Once that's done just for good measure, press and hold the reset on the back for 10 seconds. Once that's done, add the camera back to mydlink and then try the LED function.