I would use Atmega! I have used it, and it is realy cool part for some projects ;) So, you can use GCC compiler for compiling your C source, it is free, and it produce quit enougth small source. You can find it in http://www.avrfreaks.com/ I've seen, there was new version winAVR.

If you need any assistance with AVR, you can ask me, I'll help you as mutch, as I can!