It's odd -- I thought I also had the same problem of the modified version not working, but it seems to be working for me now.
Here's what I tried after downloading, unzipping to the Desktop, and stopping my already running vanilla version of CAPshift (this was admittedly after some initial confusing testing):
Start CAPshiftMod.exe
=> I noticed a new .ini file being created
Hold CapsLock until I see a string which is 500 ms (or 400 ms or ...) and then let go
=> LED on keyboard comes on, no menu appeared
Hold CapsLock until I see a string which is 500 ms (or 400 ms or ...) and then let go
=> LED on keyboard goes off, no menu appeared
Oh, and BTW, nice suggestion and nice modification