CYCLONEIII NIOS II Dev Kit Issue

The "number of outputs" problem only arises for outputs in a Vref group with voltage referenced inputs, e. g. SSTL-2 used with DDR2 memory. You obviously revealed why not all LEDs had been connected. Actually there is a trick for outputs not toggling during normal operation. You make Quartus fitter ignore these pins in placement rules check by specifying a toggle rate 0 as discussed in AN 466, Cyclone III Design Guidelines on page 16.