Erni:
The problem could be caused by the target running at 1 MHz with code built for a processor running at 8 MHz.
If it is of any help, I just tried a Attiny85 running at 1MHZ and selected board Attiny85 @ 8MHZ and got:
--- Knock-Bang fault: 11 ---
With the same target and selcting board Attiny85 @ 1MHZ it works as expected (Output to the serial monitor looks as it should)
yeah, I just did this too. It makes sense since the frequency is 8 times faster, would make the signal shorter. I was under impression serial monitor needed to be 8Mhz like normal, but this seems to run differently.
It works perfect now! thanks guys.