I have vin to pin 1 (v-in) of regulator and the pin 3 (v-out) of regulator never makes it's way back to the Arduino. I also have ground going to regulator.
If you want to PWM the backlight try using a small transistor to drive it
It confused me (and still does) that the board yields desired output when powered by the USB, and fails when powered by an external power supply.
Reading your post makes me realize it doesn't matter whether it works with USB, I shouldn't be driving the backlight with an IO pin.
If I pull the VIN to a break out board, can I then use that to drive the backlight or is the VIN pin regulated/limited as well?
Do I need to setup a voltage regulator (7805) to be driven by the VIN? I think I experimented with this and had a similar failure... powering the backlight from the VIN still caused the arduino to reset.