It would be interesting to see the disassemble of your new C program. Would you mind posting it here?
This is after the decrements.
Code:
if (counter1 == 0) {counter1 = 112; fbi(PORTB, 0);}
00000097 CPSE R2,R1 Compare, skip if equal
00000098 RJMP PC+0x0006 Relative jump
00000099 LDI R25,0x70 Load immediate
0000009A MOV R2,R25 Copy register
0000009B IN R25,0x05 In from I/O location
0000009C EOR R25,R24 Exclusive OR
0000009D OUT 0x05,R25 Out to I/O location