I have tried toggling between the stk5002 and the wiring compilers (per google suggestions), but just cannot get this darn thing to work.
This statement concerns me a little. Based on what does work (loop back) and what doesn't work (uploading) it would seem that the problem has to be one of the following in no specific order:
Defective mega2560 chip
bad bootloader
Bad IDE installation
And this last could be the result of whatever google suggestion you did. If it was my setup I would first just try and reinstall the arduino IDE first.
If that doesn't work I would then use your Uno board running the arduinoISP sketct (or even better and simpler Nick's great sketch and instructions ( Gammon Forum : Electronics : Microprocessors : Atmega bootloader programmer ) and attempt to burn a new bootloader onto the mega2560 chip.
Lefty