I am not quite sure, but you overload the output of your LED connection. The pin is only able so source 4mA and you have connected it so that it has to deliver more than 8mA when using 3.3V. At 5V it would be even more than 16mA
Your assumption that the pin has to stay in high state is correct, so the reason must be elsewhere (toasted pin, bad supply etc...)
You have the control reg pin tied to the processor reset pin,
looks like you must be resetting processor. But its stated
as an aux reset pin, and its functionality is not checked off
in system tab, *.cydwr file A bug ?
Your LED pin is NOT overloaded per se. Its a P channel
output and will inherently be fairly low current due to
source bulk effect and lower mobility.
Iled = ( Vdd - Vledth ) / 200 =~ ( 5 - 1.5 ) / 200 =~ 17.5 mA, if
the P channel was a perfect switch, which it is not.
So I would not worry about overload unless you want to do a number
of pins then you have a port I/O rail limitation.
It was an o-scope issue. I had it on AC coupling. Doh!
Been there, done that, will continue to do that, welcome to