Thanks for the capacitor hint. I swapped mine around and now also working with low fuse 0xFF and running well at 16MHz. Just for interest, when connecting the 1 MHz to pin 7, the LED flashed, but the mini would not accept AVRDude commands. When connecting to pin 8, the LED flashed and it accepted commands from AVRDude ?? External oscillator should be connected to pin 7 according to all documentation I have seen ? Maybe the wrong cap on pin 7 affected the system? (I used a DS0201 Mini Oscilloscope signal generator for the 1 MHz signal)