On: Should toggle button show its current state or the...

[gedy]

This is a case where I think the indicator (LED in real world) should be separate from the button, which label does not have to change.

[cobbal → gedy]

Should the LED indicate mute on or mic on? I could see it both ways, and so I would also have a hard time trusting this UI at first.

[SoftTalker → cobbal]

Should be a text label in present tense not (or not only) an "LED". I like radio buttons but something equally unambiguous could also work.

  Microphone Status
    [ ] Muted
    [x] Unmuted

[gedy → SoftTalker]

Amen on radio buttons. It's been really challenging to get UX people in my companies to use these for some reason.

[terribleperson → SoftTalker]

This takes up a lot more space, but I like how absolutely unambiguous it is.

[kqr → cobbal]

It should have a label saying "recording" or something to that effect. I don't know microphone terminology, maybe it's "picking up".

With a label, a light indicator is unambiguous.