What is wrong with this circuit?

[davidmc36]

When powered by 5V battery all is good.

What is wrong with the circuit where AVR is powered by 5V regulator? Videos show results.

// the setup function runs once when you press reset or power the board
void setup() {
  // initialize digital pin 1 (ATTiny pin6)and 3 (ATTiny pin 2)as outputs.
  pinMode(1, OUTPUT);
  pinMode(3, OUTPUT);
}

// the loop function runs over and over again forever
void loop() {
  digitalWrite(1, HIGH);
  digitalWrite(1, LOW);   // turn the LED on (LOW is the voltage level to turn on TIP117 PNP Darlington)
  delay(250);
  digitalWrite(1, HIGH);    // turn the LED off by making the voltage HIGH 
  digitalWrite(3, HIGH);
  digitalWrite(3, LOW);  
  delay(50);              
  digitalWrite(3, HIGH);    
  delay(100);             
  digitalWrite(3, LOW);   
  delay(50);              
  digitalWrite(3, HIGH);    
  delay(100);             
  digitalWrite(3, LOW);  
  delay(50);              
  digitalWrite(3, HIGH);    
  delay(900);              
}

https://www.youtube.com/watch?v=uBVoxlwcNJI

https://www.youtube.com/watch?v=UkOGMdlGNM0

https://www.dropbox.com/s/ggebjuv5dd...22300.jpg?dl=0

https://www.dropbox.com/s/6uoxfq369z...20425.jpg?dl=0