@boredat20. Thanks for the quick reply.
Does your bootloaded atmega328 chip work in your Uno?
Checked it now. Yes it works fine. I just have to select the "board" as "Arduino Duemilanove w/ ATmega328".
Does your computer recognize the homemade USB-to-Serial converter (with the FT232RL)?
It detects it as an unknown device. When I try to update its drivers from the FTDI site, it shows an error something like
your driver is already upto date, and still it is unrecognized as a usb-to-serial converter. So I've kept it aside for now, and am working with the usb-to-serial converter cable.
And I used an ST232CN, which is similar to the MAX232 IC, to convert to TTL level
http://www.sigma-shop.com/manuals/max232_manual.pdf. And this works fine, as I verified from a loopback test. And I've connected pin 9 of ST232 to pin 2 of ATmega, and pin 10 to pin 3.
So I guess the problem is in the serial communication from the ST232 to ATmega?
And this is the message/error I got when I did the verbose upload:
Binary sketch size: 1026 bytes (of a 30720 byte maximum)
avrdude: usbdev_open(): did not find any USB device "usb"
And as before, the error I get using normal upload (of the Blink example) is:
Binary sketch size: 1026 bytes (of a 30720 byte maximum)
avrdude: stk500_getsync(): not in sync: resp=0x00
Try adding a couple of 1k pull-up resistors
Tried it. Adding them didn't make any difference, and got the same error.
Is there any special connection to the Reset pin of ATmega? I've just pulled it up to 5V with a 10k resistor.