Breadboarding atmega328 yields unexpected behavior (newb needs help)

Put a resistor in series with the LED as well before you damage the pin.
You look to have excessive wiring on the reset switch as well. Go with just the resistor to +5 for now.
Try it without the 22pF caps as well. Folks sometimes get the wrong value by mistake (wrong part delivered) and that keeps the crystal from oscillating.