Your ohmmeter is your friend. I confess, I don't remember which pin is ground on the coupler connection, but it's easy to find out, just meter it to the ground connection on the larger 4-terminal connector strip.
I don't know why someone advised you to not use LED's, I rarely do an ERR install without using LED lighting! Add a 470 ohm 1/4w resistor in series with the LED and run the positive side to ground the negative side to the lighting output.
As far as the specific Lionel wiring, I'd have to see it. Since I'm pretty sure the DERU reverse unit puts out AC voltage not compatible with LED's, I wonder if the wiring harness already accommodates the voltages from the ERR board.
