The rainbow LED's in the macro controller are on a flexible circuit board that we install in place of the stock LED's. If the flexible board moves out-of-place over time, the coloring could do what you are showing in the pic. (I think. The other possibility is the red LED is burned out. But if that was the case I think you'd know it, if you played back any macro with red on the LED3 and it works, then you know the red LED is still working). The flex board just needs to be scooted back into place and secured with a piece of electrical tape.
It's a bit of a balancing act using two hands to open the controller and adjust the LED board without the guts falling out, but I think you can do it so long as you are careful when you open the controller that none of the wires from modchip to tac switch get tugged off. The other fun part is carefully looking inside the controller as you close it back up to make sure none of the ratsnest of wires are getting pinched anywhere as the shell closes up.