Erni:
ok this is where I am confused. I have the capacitive sensor hooked up to the attiny not the arduino
So do I
nor did I know it even had it.
It does, see the picture above
you say "using 0 and 1 you are interferring with MISO" I don't see how that will interfere with MISO on attiny...?
Look at the picture PB1 (or 1) is MISO used by TinyISP to communicate with your Arduino
I have capacitive sensor on 0 and 1 of attiny
Again 1 is MISO
and reading serial from attiny on PB3 (I thought this was default, I have always used this and it used to work fine)
No, the default is PB1 when you are using TinyISP.
If you use TinyDebugSerial, the default is PB3
Ohhhh, I was confusing myself because I was using a different core last time. it definitely had a different pin, i made suggestions you made and all is well. thanks for your patience 
everything is working as expected. so using TinyISP is 0 the serial in( like Rx on arduino)? this relationship kind of confuses me because I have output from attiny going into Tx of arduino, which I thought was transmit. I would expect it to go into Rx.