As a "Electrician", i need to say that is not that useful, somethings are not OK with your electrical setup.
I'm doing this so you can learn some more on this field.
How the Arduino works in its misterious ways:
The Arduino was designed as a smart control platform. Not to provide power to loads, with that in mind,
the Arduino have a max output of 40mA (0.04A) limited by the micro-controller, anything beyond this will work for a short period of time, but it also will damage the micro-controller very quickly due overload and overheating.
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The servos magic:
In the spoiler you can see the "universal" specs of 9G servos (the ones you are using)
looking at the datasheet we can see that the Idle current is 2mA, that's totally compatible with the Arduino output, but the running current is 255mA in the best scenario. This is 638% over the Arduino output limit, it will work for a few, but over the time it will damage your Arduino board.
To prevent that, you need to run your servos with a dedicated battery pack, preferentially a regulated Vout one.
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Bling, Bling:
Lets talk about the LED now, it is working nice cause you only have 1 LED on the board, this one LED is just using 20mA, and this is fine for the arduino, since it can handle 40mA on the output, but, put 2 more in series and you will be in trouble, like the servos you need to run them on a dedicated battery pack.
The right way to apply the LEDs this project is to put them in parallel and connects them to the regulated 5V battery pack, each led with its individual resistor to limit the current.
If you want to keep the fade effect, it will be necessary to use transistors, which operate basically as a relay, but at the same time has the ability to limit the current on the output, using almost no current on its control pin.
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The sorcery of the single battery pack:
how to use a single battery pack for the whole circuit?
you will need to use a nice battery pack, with 2000mA/h or more, with 7.4 ~ 9V, and regulate the output for your needs.
http://i3.photobucket.com/albums/y87/oozi/powercircuit_zpsb3eb6640.jpg
You can see in the image that we have a single battery pack, supplying power to the Arduino and to a regulated 5V load at the same time, saving the Arduino from the effort of providing current to the servos and protecting it, this way you are making sure that the Arduino board is working inside the current limitations. (also, you can see that all the GND's are connected together, the battery pack GND, the Arduino GND, the regulator GND and the load GND)
I hope this can help you and perhaps others who are having the same problems.
