Hi,
[...] using a microcontroller [...] transition smoothly? [...] is there a way to do this programmatically?
Sure, with a ?controller it's easy, just PWM the LED's to attain as smooth transitions as you like.
Simplest circuit will be 1 ?ctrl'er, 8 (or what number you're planning) LED's, a resistor for each LED and a small ceramic cap over the chips supply pins - assuming you choose one ot the ?ctrl'ers that can run from an internal RC oscillator.