From your description it sounds like the Ethernet I/O is interfering with the LED I/O.
Notice that:
TKLed led(O0);
This probably defines the led to be at port 0. You need to determine what ports are used by Ethernet. (I would tell you but this is a good lesson.)
IF (you need to read documentation) there is a conflict between the led port number and the ethernet port numbers then you will need to move the LED, because the ethernet ports require serial I/O, while the LED just requires a +5V or 0V.