Bringin this up again since I still have not resolved the issue. I've found I can load the sketch as many times as I want as long as I burn the bootloader first before each sketch. If I don't burn the bootloader first before each sketch, I get the verification error. Any one have any ideas, or can any one point me in the right direction here? Programming the atmega8 using an arduino uno, as well as using arduino 0023 since 1.0 won't work right for programming via the arduino isp. It's gets a little silly to have to burn the bootloader to load a sketch that has only one small change (e.g initial variable value). Thanks Guys!
Chris