Hi, I've only been using axoloti for around a month, but I've been using the launchpad objects a fair bit for making step sequencers. I don't think they'll work for what your doing, unless I'm missing something. There's probably a good chance I'm missing something!
The matrix display object will display lights on the buttons. Where the lights appear depend on the start/length attributes. But the on/off side of things reacts to information stored on a table, not the real time input. This is useful for step sequencers designed around storing the sequence in a table. The step toggle object (can't remember exact names as I'm not at my computer) stores the on/off status in a table.
The step display object displays the current step position, think of a light that moves across the buttons to show the current play position of the step sequencer.
The fader object allows you to use a row of pads as a fader.
The button display objects are useful to display lights on the top and side buttons, not the main 64 pad grid.
The launchpad in (maybe called matrix in) object is good for real time input - it translates the grid so that instead of sending the weird layout of notes the launchpad normally uses, it sends notes in a logical semitone arrangement (send the pitch and gate outputs to a synth and have a play to see what I mean). This is closest to the kind of thing you want, I think. But to display lights you'll probably have to patch something together to send the correct note signals back to the launchpad. The launchpad reacts to the same notes it sends out, so to light a pad you need to send back the same note the pad uses, the velocity of the note determines what colour is displayed. The factory midi note out object can be used to send the notes to the launchpad.
Hope that helps clear things up a little, I may have just made things more confusing!