First, are you sure that you don't have the decoder in the locomotive backwards?
If the LED has enough lead length between it and the board, you could bend the leads up, then down, then straight. Like putting an inverted V in the leads. ( --^-- ) This may shorten the length so the LED will be pulled back enough to fit.
Elmer.
The above is my opinion, from an active and experienced Model Railroader in N scale and HO since 1961.
(Modeling Freelance, Eastern US, HO scale, in 1962, with NCE DCC for locomotive control and a stand alone LocoNet for block detection and signals.) http://waynes-trains.com/ at home, and N scale at the Club.