You would think this is the case but it is not always the truth. I have noticed for example when playing a unlimited tourney in the CC or Weekly tourney's my light will remain green, so I try to remember to turn it red so people know I am playing.
Another example can be that a player is in the process of setting up a game in a game lobby and has made the arrangments to play a match that may not have started yet, so when you go to invite them they are "Playing a game" or in the process of one that is being set-up.
Conclusion: If they on your freind list take them at their word that they are infact playing a game. If they didnt want to play you they would just ignore or turn of invites from you!
Have fun!
Mes.