What components do I need to drop the 5v supplied power from Vin on the arduino to meet the desired 2.5v and 3.2v?
How do I control how much current is flowing?
To drive 4 fixtures each with 3 LEDs taking 350mA each you need a supply at least capable of providing:-4 * 3 * 0.35 = 4.2 Amps
You don't power LEDs by applying the forward volts drop to them.
LED current is set by R3, it is approximately equal to: 0.5 / R3
I highly recommend you look at the Macetech approach:http://macetech.com/blog/Their ShiftBar (http://macetech.com/store/index.php?main_page=product_info&products_id=10&zenid=fa1e90cc33bb34a3ee673c3a321016eb) and Satellite Module (http://macetech.com/store/index.php?main_page=product_info&cPath=1&products_id=16) seem to be a good fit for your project.
Sounds like a cool project - always fun to see how people put these kinds of things together Make sure to post some pictures
It's not the resistors that are the problem with that circuit it is the power dissipated in the FET. It is working in the linear mode so you need to work out the voltage across it times the current. The voltage across it will be the supply voltage minus the forward volts drop of the LED or LEDs minus the volts drop across R3.Then look up the package dissipation of the FET you are going to use and the size of heatsink you will need to make it run without melting.
This are common anode LED stars, they're mislabelled. That means I'm not using an NPN transistor any longer, but a? PNP I think?