CrossRoads and Lefty,
I think you both are coming to a similar conclusion which I will test.
As previously noted, this shows pretty much exactly my layout http://itp.nyu.edu/physcomp/uploads/arduinobload_wires.jpg except for the screw up in the MOSI line.
On the FT232R I am not using the RTS or DTR line at all going to the Atmega328 chip. However, the Reset on the Atmega328 is pulled to 5V with a 10k and a manual reset button as shown.
Should the FT232R's RST line run to the Atmega328 reset, pin1?
And should I go ahead and add the 100nF cap between DTR and RST on the FT232R?
I think I get it that I have no reset running over to the Atmega328, as it IS running over from my breakout board to the Pocket Programmer, as shown in the image.