Will an LED blink if noone is looking?

The voltage divider is there to provide 2.5v for the LED bias. When pin 5 is high, the LED sees +2.5v on the AVR side, forward biasing the green LED. When pin 5 is low, it sees -2.5v, forward biasing the red LED. The LED is supposed to work at 2.0-2.1v typical, so that should be OK. Here's the Digikey sales page for it:

Here's the code. Note, this is AVR C for use in Atmel Studio. The intended application is simplistic enough that bringing in the whole Arduino kit doesn't make much sense for this project. 64 bytes of SRAM and all...

#include <avr/io.h>
#include <avr/interrupt.h>
#include <inttypes.h>
#include <util/delay.h>

void delay_s(uint16_t seconds);
#define wdt_reset() __asm__ __volatile__ ("wdr")

int main(void)
{
	// Disable interrupts and reset the WDT
	cli();
	wdt_reset();
	
	// If the AVR was reset due to WDT expiration, the WDRF flag will be set.
	// This must be cleared before the WDT configuration can be changed.
	MCUSR &= ~(1<<WDRF);
	
	// Enter timed WDT configuration sequence
	WDTCR = ( (1<<WDCE) | (1<<WDE) );
	
	// Enable WDT to reset the AVR after an 8-second timeout
	WDTCR = 0x00;
	
	// Turn off ADC modules to save power (they're not used)
	PRR = (1<<PRADC);
	
	// Enable global interrupts
	sei();
	
	// Turn off all internal pull-ups and enable outputs
	PORTB = 0x00;
	DDRB = 0x01;
	
    while(1)
    {
        delay_s(2);
        PORTB = 0x01;
        delay_s(2);
        PORTB = 0x00;
    }
}

// Delay for a specific number of seconds
void delay_s(uint16_t seconds) {
	while (seconds > 0) {
		_delay_ms(1000);
		seconds--;
	}
}

Here's a Fritzing snap of the breadboard layout. Powered from the 5v/Gnd pins on an Arduino.