It's normal for the MP1 clip LEDs to flash a bit:
From the MP1 manual (which wont let me copy text, I had to type it):
The MP1 is monitored at fout points along the signal path for clipping via the front panel CLIP LEDS. If these LEDS flash on and off while you play there is no need for concern. The CLIP LEDS are there to help you pinpoint overload distortion in the event you are having trouble obtaining a clean guitar tone. If you hear unwanted clipping and the LEDS flash while you play, you should lower the level of the parameter whicvh is clipping as indicated by the CLIP LEDS.
When you turn the OD past 5 and the LED flashes, is there unwanted overload distortion ? if not it's normal and you can put your PUs back where they should be (as close to the strings as possible without the strings hitting the PUs when you play)