I know this is way old but anyway i cant help with the idleing problem but the neutral light it is because a wire is snapped proberly in the wiring loom where it touches the front of the frame this is a weak point for most xt 125 s i found this out when about 10 of mine had snapped in that place try there
No there is no point up jetting the carb as an exhaust will only add extra 5 - 10 mph if your lucky upper jetting it will just make it drink more petrol .