Will this selectable CAN BUS termination circuit work?
It looks like it should work if you're not pushing the CAN bus to the limit.  You can definitely turn on the LED with 3.3 V since the maximum LED voltage is 1.5 V.  It needs about 5 mA, so you can probably drive it directly from a digital output.

I don't like the sloppiness of the output resistance.  It can be up to 50 &Omega;, but we don't know how low it could get.  The datasheet only lists a "typical" of 30 &Omega;.  The best you can do is put a 90 &Omega; resistor in series so that the center of the spread ends up at the desired 120 &Omega;.  However, you don't know how close to 90 &Omega; the result is.

Without a minimum resistance spec, you have to make sure that the resulting resistance isn't too low for your driver chips to handle.  I don't remember what the CAN spec says that a driver chip must be able to do.  At the very least, check the specs of the driver chips you are using.  However, you can only go with that if all the devices on the bus are known to use that driver chip.

Since you don't know how well the bus is terminated by 120 &Omega; at each end, keep it short.  I would not use this termination method if you are pushing the limit of the bus length for whatever speed you are using.