PWM Led drivers which source current?

The circuit works fine with C11? (should it not?)

What makes you think it works fine? Have you looked at the waveforms on a scope. What is happening is that the FET is spending longer working in the linear zone and so dissipating more heat that it should be. You might not think it is getting hot but it is getting hotter than it needs to be and that is bad for reliability. If the capacitor is too large then it will not give you much if any variability of control.