BroHogan, thanks for confirming that! I need to get one of those variable power supply thingies! 
The problem with the 2.7V default is that the processor is already mis-executing instructions at this point, leading to unpredictable results, including corrupting program memory. I was aware of this lower setting when I read the data sheet, but I probably did not make this clear. It's pretty scary when your chip can do random stuff and corrupt memory before getting reset! I was having to re-flash my ATMEGA8 every now and then before I made this fuse bit change on it.
- Don