Am i misunderstanding the test listing? It looks like you jump past you code. Try this it will quickly flash your LED.

org 0

jmp led_loop

org 40H

led_loop:
clr P1.0 ;Turn on LED

mov R3,#0
mov R2,#0
led_on:
djnz R2,$
djnz R3,led_on

cpl p1.0 ;Turn off LED

mov R3,#0
mov R2,#0
led_off:
djnz R2,$
djnz R3,led_off

; * Loop Forever *

jmp led_loop

end