In the code I will provide, you need to take a LED neg/grnd and put it on pin 25 of the MCU (PC2) and the positive (longer wire on LED) goes to the positive rail for power. You should also notice that the code uses no include files from libnerdkit (I needed to see AVR in action without changed files by NerdKit), all include files are provided by WinAVR. The code below I tested with the NerdKit (no LCD hooked up).

/* 
I'm not a nerd, just nerdful!
www.nerdful.com
*/

#include <avr/io.h>
#include <avr/delay.h>
void sleep(uint8_t millisec)
{
while(millisec)
{
delay_ms(1);
millisec--;
}
}
main()
{
DDRC |=1<<PC2;
 while(1)
{
PORTC &= ~(1<<PC2);
sleep(100);
PORTC |=(1<<PC2);
sleep(100);
}
}

I could have made it simpler by just turning on the light (no flashing), but I needed some thrilling action!