The led's could certainly be made to look like they are fading to a point, and the nature of them could be incorporated into a pin to make it look great. Using techniques like PWM is the right approach but there are limitations. Your eyes can see flicker up to a few hundred cycles a second so you can modulate the led's fast enough to not see the flicker, until the perceived frequency is down to something you can see. Lots of ways to work around it though. Like Lindsey brought up you can use multicolor leds, shift the color to add brownish will make it look like an incandescent cooling down.
One of the circuit changes would have to be around the lamp matrix. Right now you have to account for the matrix strobing, that's an issue for for getting good PWM, you don't have control of a single lamp often enough. So the matrix has to run at a higher frequency to get good control of the lamps, the max frequency of the matrix is going to be limited by how fast you can switch the load of the harness wiring and lamps, also limited by the driver transistor but plenty of parts are around that would do the trick there.
All in all, leds can be used to look great, but they will need hardware and software changes to really take advantage of. The light dimming and slow turn on / off can be worked around, but I think creatative use of the led features will make that a moot point. You like it now because that's how they were used, new effects like the multi color will change the way you think they should look. If led's go in, it won't take long before you think old games look funny with that slow lamp reaction time.
One of the circuit changes would have to be around the lamp matrix. Right now you have to account for the matrix strobing, that's an issue for for getting good PWM, you don't have control of a single lamp often enough. So the matrix has to run at a higher frequency to get good control of the lamps, the max frequency of the matrix is going to be limited by how fast you can switch the load of the harness wiring and lamps, also limited by the driver transistor but plenty of parts are around that would do the trick there.
All in all, leds can be used to look great, but they will need hardware and software changes to really take advantage of. The light dimming and slow turn on / off can be worked around, but I think creatative use of the led features will make that a moot point. You like it now because that's how they were used, new effects like the multi color will change the way you think they should look. If led's go in, it won't take long before you think old games look funny with that slow lamp reaction time.