Yes, the LED should light up when the motion is detected. I'm also tracking the readings on the alarm pin with analogRead.
You didn't understand my question. In your first post you stated:
Then I swapped power and alarm pins and is started detecting motion.
So how have you examined that it started detecting motion? The LED we see on the photo cannot detect motion if the Arduino doesn't get an according signal. You told us that the Arduino doesn't get a signal when there is motion. So I ask again: How do you know that the sensor is really detecting motion when you don't have a signal on the Arduino?