OK,
I hooked up a 100nF cap in series from the FT232R DTR to the 328 pin1 Reset. A 10k is still pulling up 328 pin1 to 5V. Still same error from IDE...
avrdude: Version 5.11, compiled on Sep 2 2011 at 19:38:36
Copyright (c) 2000-2005 Brian Dean, http://www.bdmicro.com/
Copyright (c) 2007-2009 Joerg Wunsch
System wide configuration file is "C:\Program Files (x86)\arduino-1.0\hardware/tools/avr/etc/avrdude.conf"
Using Port : \\.\COM4
Using Programmer : arduino
Overriding Baud Rate : 115200
avrdude: Send: 0 [30] [20]
avrdude: Send: 0 [30] [20]
avrdude: Send: 0 [30] [20]
avrdude: Recv: . [00]
avrdude: stk500_getsync(): not in sync: resp=0x00
avrdude done. Thank you.