Is this a feasable method for using 12VDC LEDs as power indicators?
The LEDS are fine. But I do not think you have the ones on the timer output circuits hooked up quite right. 

If I understand your schematic, BIG IF, the two terminals at the bottom act as a switch on the 12V. 



If so the LED is connected across the switch. As such the LED is actually applying a little current to the track and will glow when a loco is on the track, but the loco will not move, or may just crawl with a dimmer LED. 

When the timer closes the LED will be bypassed and will go out.

Assuming you want the LED to light when the timer turns the power on, you need to arrange it this way.







simulate this circuit &ndash; Schematic created using CircuitLab

BTW: I am not sure how you are speed controlling, and I am assuming you never reverse the voltage to the track.

If the track power is reversed you need to add a bridge rectifier for each LED as shown below.







simulate this circuit