One Power Source into Two Power Sources....

It seems that you have the servo current problem. It's a classic mistake.
Even a small servo could require between 500mA and 1A if it starts moving. That will immediately drop the voltage for the Arduino.

The Arduino can be powered by the USB or with a power supply 7V-12V.

The servo can not be powered by the 5V pin of the Arduino. It should have a power supply of 5V or 6V that is able to provide a peak of 1A.
Running 1A through a breadboard is already a problem.

What is that PWM controller ? Can you post a link to it ?
You use the Servo library that is included in the Arduino IDE ?
That 1000uF for the power supply of the servo I wrote about, that is worth adding.