I'm not sure on the reliability of the threading diagnostics page.
If you open the diagnostics page with all the LEDs, does the one for the index go on/off as you manually move the spindle slot through the sensor?

It does sound like you've got a sensor problem. How big is the slot you're detecting?
Can you run the spindle any slower than 200rpm?

If it works at really slow speeds, it could be as simple as needing the slot enlarged.