Can anyone guide me where i am going wrong?
You make common mistake of novices - you miss the fact that real electronic component is not identical to electric parameter it stands for. So you need to read datasheet for _each_ component you use and understand meaning of _each_ parameter it states. Otherwise - endless surprises are guaranteed. If we focus on "illogical" voltage levels while changing capacitors in your case the dielectric material is the key factor. Read this great article for beginning:
http://www.maximintegrated.com/en/app-notes/index.mvp/id/5527 .
Second. When you receive wise advises like one that robotai gave the correct way to handle it - to understand what are they about, not to dismiss them just because predicted result seems to you as unmatching. See attached presentation of mentioned factor (LTspice is used for simulation). Note#1: Serial current limiting resistor compensates initial peak through LEDs only partially. Note#2: When you get measured value of voltage or current it is important to know what it represents: peaks, average amplitude (DC component) or RMS.
It's better to ensure that: (a) your LED can live with such short over-current (from datasheet! not from your experience) or that (b) your switch is slow enough or (c) activates only near zero-crossing or (d) you have other hidden current limiter. Or use "capacitive voltage divider" to have a reason to expect long life of your device.
Any other advices seem to me redundant because objective of your device is not defined enough. If the main target is "I like the flicker I've got" then it's done