And no, the AVR doesn't drive the LEDs directly. This board uses proper LED drivers. However the AVR controls these implementing a form of binary code modulation (BCM), which is quite cpu-time efficient compared to dumb software PWM.
There's a little write-up on my blog and on openhardwarehub as well (current project snapshot). Updated code and design files (kicad / gerber / pdf) are available via my blog.
Enjoy.