I agree with you JohnRob. That's why I suggested to use a 12 volt power supply, it was never my intention to scare him doing this project, but safety was a concern here. As always it is hard to give allot of advice since we are limited in what we know about the project. But I will gladly help out more if my help is desired. About the switches, I very recently bought 20 rocker switches with an incorporated LED for $9, those where for 12 volt. I can't find any switches with an LED for 5 volt. To be honest I find this strange, there must be more people that want to use 5 volt lighted switches in combination with their Arduino. Your idea to use an LED beside the switch is a very good one. When it comes to replace the like we both suspect Neon isn't easy, I opened one of those switches once, to see what value the resistor inside had and it was equipped with several springs and specially formed parts, but it might work.
Like I said, if more help is desired, I will gladly offer to help out more.