Oops I did not illustrate that in the schematic. Yes the power rails are all connected. I bought all my parts from spark fun. I have 2 max 232 chips and 2 atmega 328. 3 16MHz crystals and 1 16 Mhz ceramic resonator. I have switched out all components so unless they are all broken I dont know. If i disconnect the max 232 chip the same behavior persists. Here is the parts list.
ATmega328 with Arduino Optiboot (Uno)
RS232 Converter DIP - MAX232 MAX3232
Crystal 16MHz
2x Capacitor Ceramic 22pF (filters crystal)
5v regulator -LM7805CT
2x Electrolytic Decoupling Capacitors - 10uF/25V (regulator)
7x Capacitor Ceramic 0.1uF
2x 330 ohm 1/6W resistors (led's)
1 10K ohm 1/6W resistor (reset)