I have an update.
On XDA another user of BLN pointed out the problem appeared when BLN introduced the proximitiy sensor feature, prior to that BLN was 100% working with CM7.
So I uninstalled BLN pro and installed BLN free, BLN free has not been updated in a while and doesnt have any proximity sensor feature.
I did this test.
BLN pro I disabled all blinking and set to the LED just stays on for a notification. When I did a missed call or just a BLN led test the LED would mostly stay on but randomly go off for a second beforce coming back on, sometimes moving the phone triggers it but not always.
BLN free configured the same way (cant be configured another way is restricted), the LED stays on 100% as it should do. Since CM has a missed call LED feature for now I am using BLN free and accepting I cant use the blinking function, however I will only do this temporarily.
Here comes the problem as I see it.
Android developers are different to windwos developers, they seem to get offended on things like asked for ETA etc. The accepted motto on XDA is if you use software then you are expected to accept thaty the developer may stop supporting it and you cant ask for things like progress reports, eg. the last CM update was many weeks ago and it could be months before another update or it could be a day, we dont know. There is no email address to contact them and I havent seen one post on any of the CM threads on forums, this to me is not a good way to develop and communicate with your users. Instead there is the bugtracker which however makes it clear if there is no logcat or whatever its called they will reject the bug report, so there is clear barriers to reporting bugs. Which goes some way to explaining why CM is so buggy.
I have however left a post on the BLN XDA thread but its worth pointing out the BLN dev ignored the other guy who posted about CM weeks ago on it. BLN is a paid app so I do expect a reply and fix of him as I have paid for it. Whether I get one I dont know. My gut guess is its a proximity sensor issue and if the BLN dev releases the old BLN version again (before he added the sensor code) it will work fine. Ultimately its a CM bug tho.
Also to add CM7.1 has the same issue as well, I thought it didnt at first but it does. Plus it behaves better when the usb is plugged in for some reason.