The Mute light on the V803 essentially functions as a peak-signal indicator. On the MODERN and WARM voicings, it lets you know you are getting into our "bottomless limiter" whose action is otherwise fairly imperceptible, other than preventing breakup. On the QTUBE voicing, the LED flashing should correspond with audible breakup.
All of this occurs in the preamp, after which the Master controls what percentage of the power amp's headroom you are using, which should be set to a level equal or less than the rated power of your bass speakers.
In short, the LED does not indicate a problem, it just tells you when peak signal levels are being reached.