What is the best way to add a LED indicator to an open-drain sensor that's read with a GPIO?
It might work but the LED will not be very bright. The proximity sensor you want to use is not intended to sink enough current to light an LED. The typical collector current is only guaranteed to be 0.3 mA when the LED is driven at 20 mA and a white card is placed 0.050 inch from the sensor. That's enough current to pull your 10k resistor low, but it will not give you a very bright LED.
Also, the saturated Vce is 0.4 V at 0.1 mA, so you need an LED with a low forward voltage. Green and blue might not work at all.
I would follow the suggestion from @AndrewMorton and let the RPi give you the visual indication.