Okay, that's a good first step.
Now we need to see whether the software is actually turning on the PWM channel. Measure the voltage on Pin 11 of the Atmega chip (signal is PWM1 - see schematic sheet 4). Although the Atmega chip is on the bottom of the cape, its pins extend through to the top. But it will take a bit of thinking and looking to figure out which one is pin 11.
When you turn the LEDs on in software, you should see a voltage on pin 11. For the LEDs full on, this voltage should be 5V.
If you get voltage on Atmega pin 11, then perhaps the LEDs are shorted somewhere. Try removing the LEDs and remeasuring the voltage where the LED wires would hook up to the cape ( connector P11).