Im using proximity switches on my current build. So thought i'd post up my setup for anyone that wants to go this route. I've bench tested everything and all is working. Here is the parts and schematic for the relay board that I built.
im using these here DC6 36V 300mAh 4mm LJ12A3 4 Z BX Inductive Proximity Sensor Detection Switch NPN | eBay
and all parts for the relay board were sourced from radio-shack. This setup uses separate isolated power supplies for the switches and relays. The diode is there to prevent other leds on adjacent switches from turning on, when one switch is on. You cant see the led's in the pic because they are on the ends of the switch where the wires come out.
This setup is slightly simplified compared to the other, it doesn't require mounting extra magnets on the machine.
The proximity switch senses metal within 4mm or closer range.
setup can be wired normally open or normally closed through relay switch contacts. Also, the switches will run on any voltage between 3-36v. I'm just using 12v in the diagram because that's what I have.