I edited the instance 'instances/lights/light_panel_128_cool_med.vmf', and made the light entity toggle-able from the outside with a func_instance_io_proxy. The toggle option doesn't seem to work? Is there a solution?

generally you don't want to have lights that are able to toggle; because of how lighting works in source.
If you have 1 light with a name you will get 2 different light maps, 1 for with the light on and one for off.
if you have 2 lights you will get 4;
3 will get 8
4 will get 16
etc etc.. so toggle lights will ruin your compile time and the overal performance of your map.

Just make an on and an off version, and carefully choosing which one you're using would be the way better solution.

Thanks for the response.