Hello!
On my custom made PCB the RST pin is decoupled to ground with a 100nF (bypassed with a switch for manual reset) and is set high via a 10K resistor.
You are right, if I get the correct timing using the manual reset switch I can get it to program, but only with Duemilanove w/ ATmega328 bootloader.
The decoupling capacitor is there to provide a low-state to the RST pin at power-up, until the VCC stabilizes. It seems that the Arduino serial converter cannot properly reset the target board. Is there any need for a series capacitor? I have seen the Arduino schematic and it's already there...