The following applies to the XP500, PX5, Delta, and X41.
There are 5 LEDs on the front face of the headset's transmitter "tower". From top to bottom, they are:
2) Digital Input
3) Dolby Pro Logic IIx (PL IIx)
4) Dolby Digital (DD)
5) Dolby Bypass
The LEDs appear ABOVE the text label as in the image below:
The top LED indicates whether the transmitter is turned on as well as whether the headset and transmitter are currently paired together. If it is lit and solid on, the headset and transmitter are paired together properly. If it is slowly "pulsing" on and off, then the headset is not paired to the transmitter and they should be paired back together. Here are instructions for pairing the headset and transmitter together: PX5, XP500, Delta Pairing Instructions
The other LEDs can be in one of the following three configurations.
1) Digital Input ON, Dolby Pro Logic IIx OFF, Dolby Digital ON, Dolby Bypass OFF
This means the transmitter is performing optimally. It is outputting Dolby Headphone Surround Sound both through the headphone jack and wirelessly to the headset.
2) Digital Input ON, Dolby Pro Logic IIx ON, Dolby Digital OFF, Dolby Bypass OFF
This means the transmitter is receiving a digital signal, but it is not a Dolby Digital surround sound signal. This may happen on the XBOX dashboard, PS3 main menu, or in other situations where the transmitter is not receiving Dolby surround sound audio.
3) Digital Input OFF, Dolby Pro Logic IIx ON, Dolby Digital OFF, Dolby Bypass OFF
This means the transmitter is not receiving a digital audio signal at all. This may mean that the optical audio cable is not installed properly. It could also mean that you are using red and white stereo RCA cables instead of the optical audio cable to hook up the transmitter.
If the Dolby Bypass mode is enabled, the Pro Logic IIx LED and the Dolby Digital LED will turn off and the Dolby Bypass LED will turn on. In this mode, the transmitter is outputting unprocessed stereo audio.
No other configuration of LEDs is possible.