Tried your code, nothing happens. Can you send me the hex file please? make it a zip or change the extension.
I used the default fuses, changed only the clock to external xtal 3-8Mhz and slow startup.
LE: Why must it be so complicated? I tried 2 different atmega8's with the code from firewalker, no effect. Took them out and installed a breadboard with 8mhz xtal, still nothing. Changed the uC to atmega328 (as the exaple code from mikroC is for 168) now there is no flickering, nothing. ADC works great, even lcd (in simulation) but pwm is a problem, why is it so complicated? The last resort is to use a atmega8 with arduino and try to stay with a small code(6k i think).