This page has the circuit diagrams, C code, and compiled windows executable for using ISP to program a PIC. The (windows) software is different form the AVR software, so maybe it is just a cheap way to program PICs. Certainly cheaper than $1200.
http://elm-chan.org/works/avrx/report_e.html (near the bottom)
I suspect the problem is not with your C code but with your Makefile.
The following lines in your Makefile produce an example.o object file.
main:
avr-gcc -g -Os -Wall -mmcu=atmega328 -c ../src/example.c
The created .o file only contains the symbols and code from example.c, not the additional source required to actually make it run on a target system such as interrupt vector jump tables and code to initialise the BSS RAM segment to zeros, and load your initialised data sections.
You'll need to add an additional line something like this to run the linker and produce an output object suitable for download to the AVR part. Alternatively, use avr-ld, but you'll have to work out all the required linker options.
main.elf: example.o
avr-gcc example.o -o main.elf
You can use avr-objdump --disassemble-all <filename> on both example.o and main.elf yourself to verify the different content of each file.
It's always a good idea to try to reduce your problem in steps to the most simple example possible. In this case, it would probably mean dropping into the AVR Studio software and creating a project running on the simulator using their managed build process. From there, you could them export the Makefile in use by their build process by using the 'Export Makefile' menu option. The generated makefile could then be compared with your version.
Actually, it's probably a good idea to use a Makefile similar to the one generated by AVR Studio because it has the correct rules already defined, you just have to set up some variables with regard to which objects need to be generated and the final target file name.
Best Answer
As others have already stated, nearly every AVR developer picks some fixed frequency for each application, and runs the AVR chip at that one fixed frequency. Just this week I wrote some code that runs on an AVR that runs at fixed 16 MHz (which is pretty common), but it generates two variable-frequency outputs independently controlled by two pots. (The pots are actually connected to another microcontroller, which reads the pots, and sends their position up a 400 ft RS485 serial cable to the AVR UART).
However, there are a few AVR developers who vary the frequency of their AVR chip at run time, such as Spritesmods (a) (b); cloudscapes (a); K0LR (a); etc.
Using an external RC oscillator
A few AVRs support an "external RC oscillator" option, which is extremely similar to a 555 RC oscillator -- you hook a resistor (such as a pot) and a capacitor directly to the AVR. Just like the 555 RC oscillator, when you turn the pot, it changes the resistance R of the pot, which changes the frequency. "Application Note AVR051: Setup and use the external rc oscillator" (a), (b)
Alas, many popular AVR chips do not support an "external RC oscillator" option. Even those that do, the frequency is limited to the range 100 kHz - 12 MHz. (The ADC doesn't work right at low frequencies, and the UART is going to be difficult to use if the frequency keeps changing).
driving the AVR at some frequency generated elsewhere
If you have some clock source that already generates the frequency you want, you can connect its output to the AVR and program the AVR to use "External Clock" option. This approach works with any AVR and any frequency from zero Hz (0 Hz) to 8 MHz. (i.e., you can go much slower than the "external RC oscillator" approach). (The ADC doesn't work right at low frequencies, and the UART is going to be difficult to use if the frequency keeps changing).
You program the AVR fuse bits to use "External Clock" option if some external source (that oscillates by itself) is driving a squared-off signal into the AVR clock input pin. (Even if technically that external clock is an RC oscillator). This external oscillator could, for example, be a 74HC132 Schmitt NAND and a capacitor and a pot, or a 555 oscillator with a capacitor and a pot, or a huge variety of other oscillators.