I was trying the upload 'Upload' button to an AT328p on a breadboard via a Leonardo with the ArduinoISP sketch under 1.0.1. But what I should have been doing all along was the File -> Upload using Programmer. That works. The confusion came about because I don't think I needed to do that to AT85's, one for audio and one for an RGB LED (that I just finished doing a while back).
I'm not familiar with using the AVRISP MkII, but I assume you're already doing the correct thing (File->Upload via Programmer), and not by hitting the upload button in the IDE GUI as if you were just uploading a sketch normally, right?