This is an issue that happens again and again. Admin made a mistake when writing the LED part of the $50 bot tutorial. Step 3B says:
Now add the LED as shown, slightly above the board. Make sure the longer lead (+) of the polarized LED is on the side closer to the DIP socket.
This is backwards from what it should be. The shorter lead (the cathode) should be on the side closer to the DIP socket. The idea here is that when the PD4 pin goes low, that means it is connected to GND. Current then flows from the +5V power bus, through the resistor, through the LED, and finally into the pin on the ATMEGA.
You can fix this one of two ways. You can either unsolder the LED, turn it around, and resolder it OR you can unsolder the side connected to the +5V power bus and connect it to GND instead. Keep in mind that if you use the former method, the LED_on() and LED_off() functions will work as intended. But if you use the latter method, they will do the opposite of what their name would imply.