When i turn of the transmitter the timer1 overflow happens but seems to get stuck in the interrupt with the LED toggerling all the time.
TCCR1B |= (1 << CS11); // 256 prescaler
TCCR1B |= (1 << CS10);
That code set the prescaler to 64 not 256.
With the timer in Normal Mode, it will overflow in 2^16 x 64 x .0625 us which works out to a little over 262ms. The led will be toggling quite quickly. What were you expecting?
TCCR1B |= (1 << CS12); // 256 prescaler
Will set the interrupt driven led toggle to more like one second.