No, the priority doesn't affect the LED. Maybe it should, but today the LED follows this algorithm:
When a notification N1 comes in that wants to set the LED (with FLAG_SHOW_LIGHTS):
a) If there are no other active notifications requesting an LED, the LED is attached to N1 until N1 is canceled (or updated to remove its LED flags).
b) If the LED is already in use by another notification, N1 goes to the front (!) of the lights queue.
When a notification using the LED is canceled, the notification at the front of the lights queue is given control of the LED until it is canceled (or updated to remove its LED flags).
So it's last-in-first-out, but sticky (i.e. whatever has the LED keeps it until it's gone).