Calculate exact timer frequency for ATTiny
I don't use AVRs (I use PICs, but the basic peripherals are much the same), but I imagine the timer register is 8-bit, and the basic setting is to trigger an interrupt on an overflow.
So unless I've missed something (very possible, been up all night :-)) I think you are out by a factor of 256, since you don't appear to have allowed for this.

If your clock is 1MHz, and the prescaler is 64, then the overflow should occur every:

1 / (1e6 / 64 / 256) = 16.3ms.

If you multiply this by the 128, you get ~2 seconds.