Thank you for your help. I've put a 120 Ohm resistor between the Arduino Reset and GND, but it needed a 10 uF capacitor instead of it. Now I see the heartbeat LED powered on.
In the future if you want to use a resistor to defeat auto-reset it has to wire between +5V and reset, a capacitor wires from reset to ground as you found out. Either method works.
Funny thing is I've used arduinoISP sketch quite a bit recently on an older Duem board and have never had to defeat the auto-reset to have it function. It's a timing thing I know but I wonder what the variations are that make it required for some but not for others? Actually my Duem has the optiboot bootloader on it so it thinks it's a Uno board and has to be selected as such to upload to it.
Lefty