LED remains off on ATmega16
Too much details for a comment, so I chose to write it as answer.

Try these commands:

cflags="-g -DF_CPU=1000000 -Wall -Os -Werror -Wextra"
avrType=m16

avr-gcc ${cflags} -mmcu=${avrType} -Wa,-ahlmns=test.lst -c -o test.o test.cpp
avr-gcc ${cflags} -mmcu=${avrType} -o test.elf test.o
avr-objcopy -j .text -j .data -O ihex test.elf test.hex
avrdude -p ${avrType} -c avrispv2 -P usb -v -U flash:w:test.hex


Check http://git.linformatronics.nl/gitweb/?p=makefile;a=summary for a generic Makefile. It'll need some tweaking as I am using a different programmer and controller, but it should be pretty straightforward.