digispark pin mode input_pullup reading low on pin 1
You have effectively set up this situation:

The current through the LED will be roughly:
5 / 30000 = 0.167 mA

The LED will light dimly. The voltage drop over a red LED is normally around 2V but at that current I measured 1.5V on a test setup.
The 150 ohm resistor (or whatever you are using, if anything) won't make much difference to that voltage. Therefore there is 1.5V on the input pin.
When you do a digital read you are reading 1.5V. Assuming your Vcc is 5V, then the Attiny85 datasheet specifies that a low reading is from \$-0.5V\$ to \$0.3 * Vcc\$ (ie. up to 1.5V) and a high reading is from \$0.6 * Vcc\$ (3V) to \$Vcc + 0.5\$.
Therefore the input pin reads LOW.


Therefore removing the SMD LED should allow the pin to rise to the pull up value and should then read HIGH on the digitalRead(1)

Yes, removing the LED will stop that current flow to ground.