We just added the set up CaptFish mentions (the red light is a fluorescent screw in type) and we are seeing more of Cassy with this addition. Tatanka chooses to den on the side (split tank) with the red light (this one is an LED style dome light). Both of these are nocturnal animals. For diurnals, be sure there are places that are totally dark for them to sleep.
Here's a comment Roy made four years ago about blue LEDs- I keep copies of some of the most relevant posts for future reference.
Roy on Moonlights Feb 3 06:
The real question is whether you want to see the octopus, have a cool looking tank, or have a happy, healthy animal. The blue LED's have a very narrow spectral range peaking at around 470 nm, the same wavelength that you woud find at depths below 30 m in the middle of the day. It is also fairly close to the peak sensitivity of most octopus that have been studied. In short, you are exposing the animal to the spectrum to which it is most sensitive. This is not equivalent to watching an octopus under very subdued lighting. Moon light will have he same spectral qualities, but would be much dimmer. I agree that a tank shimmering in blue light is appealing to our human senses, but it probably seems pretty bright to your favorite octopus.