jackrae:
since the FET is not used as a voltage dropping device; rather it is a switch which turns the LEDs on or off at the PWM frequency. If the LED is switched on for say 1mS and off for 1 mS continuously it will appear dimmer than it would if it was permanently energised.
Thanks a lot, that cleared it up. I mis-understood the PWM and was thinking that the FET would simply be 'on' all the time but controlling the current with a voltage. Using PWM the FET will allow full current through but the rapid on/off gives the apperance of brightness.
It was this "This on-off pattern can simulate voltages in between full on (5 Volts) and off (0 Volts)" from the Arduino - PWM page that confused me. I was thinking that PWM would give between 0-5v but what its really doing is turning 5v on and off really fast.
Also, any chance you could recommend a FET to use