Attempting to use ATMEGA on its own
I'm using a pair of resistors as a voltage regulator to provide 5v to the ATMEGA.



I'll bet anything this is at least part of your issue. Use a proper regulator for your micro. Make sure you get your decoupling right too.
The thing that jumps out at me the most is the lack of capacitance across the servo power pins. You need to put some big ass caps™ in parallel with some smaller ceramics across those things, or the stall current will cause the power rail to sag and the micro's brown out reset will trigger. The reason it works with the Arduino is it's powered from the USB port.