paimpozhil:
I thought the ATMEGA has internal pullups on the SDA/SCL i could be wrong? . like i said I dont even have the ATmega inserted on the setup and it would still over heat..
It does, and if the Wire library is being used, it will enable them. It will probably even work this way, but the pullups are technically too weak. External pullups between 2.2K and 4.7K would be best. But either way, this will not cause overheating.
Four posts in you tell us about the voltage regulator. Have you measured its output?