Arduino and Wave Shield. Possible Power Issues?

Hello,

Im working on a setup for some code a friend of mine wrote and Im experiencing some very erratic behavior. the set up has 3 switches and 2 buttons. If you throw the first switch. lights turn on via shift out on 6 registers. Throw the second lights turn on plus sounds. The problem is when I throw the second switch, all the lights shut off but the sound still plays. Sometimes the program runs flawlessly all lights buttons switches and sounds work 100%, sometimes no lights at all only sounds, sometimes I have to reset the board then the lights work. I checked and rechecked all my solder points so now Im at a loss as to what is casing this.

If it didn't work all the time I could trouble shoot a lot easier but since its all over the place, I have no idea where to begin. The current hard ware set up has the +5v and the ground going into a power board. That power board then feeds 5v to the shift register chips ( 6 of them tpic6b595's), the switch board ( board with 3 switches and 2 buttons), a set of 5v usb speakers, a set of 15 LEDs, and another set of 14 LEDs. I have to two sets of LEDs hooked up to this cause I thought originally that the LEDs weren't getting enough power or were drawing too much away from the chips.

So my question is this could the fact that the arduino is supplying the power to all the components be whats cause the lights to fail? Im thinking there are spikes in the 5v when the lights are running with sound and another switch is thrown to activate more sound and lights, causing the shift registers to turn off and loose there state.

What I want to do is create a power board that takes the 10.8v battery Im using and converts it to (5) 5v out put screw terminals via a 7805 regulator. then off the terminals I can connect the arduino, chips, speakers, etc. Would this work and possibly clear up the issues? Should I integrate capacitors into the design to make sure its always 5v with no fluctuation? Can I use one 7805 or would it be better to use one per output? Would using 1 per out put help spread the heat dissipation across more regulators or would it time the heat by 5 and drain the battery quicker? Is it the fact that Im using cat5 cable on all my LED's plus switches causing interference?

Sorry for the long type up and I realize there are a lot of questions in there, but I'm still a noob. Thanks a lot !

~ john

Here is a sketch I did of the proposed power board along with a typical switch/ button setup