Theming forms on alter with Drupal 7
I found this answer for Theming forms on alter with Drupal 7 on Stack Overflow: 


  Themes for Drupal 7 form elements need to use the new render array key instead of variables in the theme definition:

function mymodule_theme() {
  return array(
    'custom_radios' =&gt; array(
      'render element' =&gt; 'element',
    ),
  );
}

  
  Once you've made the change, clear Drupal's caches and your code should work (I've just tested the above and it works fine).