Given that both drives are no longer recognized internally I would suspect there is an issue with the HDD cable. When removing the old hard drive and installing the new hard drive did you put any strain on the cable or bend it too far?
The red light that is glowing is the optical out signal, it is not an indication that anything is necessarily wrong with your logic board. I hate to ask, but have you restarted the computer to see if that has resolved the issue? From what you described it could just be a software hiccup that could be resolved from a restart. If that doesn't work you could try a PRAM/SMC reset.
This will most likely require your keyboard to be replaced. Two ways to get this done, you could replace the whole top case or you could replace just the keyboard. Replacing just the keyboard would require unscrewing several tiny little screws to unmount it from the top case assembly, but it can be done.