I got it working by using parallel programming. At least I'll be able to use Arduino that way, which ain't so bad.
I used the "Parallel Port Programmer" described by Arduino; here: [u]http://www.arduino.cc/en/Hacking/ParallelProgrammer[/u]
AND, Burning sketches to the Arduino board with an external programmer, FIND THAT HERE: [u]http://arduino.cc/en/Hacking/Programmer[/u] This is done without a bootloader, so it says in that information page.
I'm sitting here looking at that blinking light, finally
I even modified, slightly, the blink program from a one second blink to a two second blink. But , since the LED in the sketch uses the same port as the SCK port on the ATMEGA168, (one of the ports used by the parallel programmer) you will need to remove that LED before programming. You can put it back in after the program is uploaded, and it blinks 
;D.
You will need to make a couple of mods in Preferences.txt file in C:\Documents and Settings\Owner\Application Data\Arduino , which is the (per-user local version of the pref. file) as the instructions state__.(where it says: upload.using=bootloader, replace the word bootloader with the word parallel)__
Here's something else, if you should use that homemade arduino programmer that pref. file doesn't include this statement: set the parallel port defaults (used if upload.programmer=dapa). That statement is in one of the main pref., default , files. I copied it from the main pref. file, found in The "arduino-0012/lib", then inserted it in the smaller (per-user local version of the pref. file) I inserted that statement without the # in front of it.
OK, I gotta go, the LED's still blinking and I gotta get away from this computer for a while.
Patrick