You are correct that the cell light should be on when the cell is producing chlorine. I suggest you get your water balanced first by adding bleach to increase Chlorine (aim for 5ppm), adjusting the PH (you need to lower to 7.4 - 7.6 with Muratic Acid), and increasing the CYA to 60 - 80ppm by adding stabilizer. I think your problem is mostly due to low CYA. I don't remember if your ALK or CAl was in the correct range or not.
FYI, I use the IC40 on a 20,000 gal pool with CYA around 70 and output set around 40% (8 hours pump run time). My chlorine output increased when I upped the CYA (from 40) and I was able to reduce the IC40 setting from 60% to 40% to maintain 5ppm CL.
Good Luck