Success at last.
Fixed the problem by burning optiboot to the IC first using the optiboot sketch.
Then when I tried to burn the breadboard 8Mhz boot loader with arduino as ISP it worked, weird the chip must have been in a state that the optiboot could deal with where arduino isp couldn't.
Now next question is, is there a optiboot 8Mhz boot loader or how to I configure for it?
Thanks,
Mark