Okay, its working at last!!
Actually, I had to follow the steps given at http://mchr3k-arduino.blogspot.com.au/2012/01/wireless-sensor-node-part-2.html
very closely (to the letter) to get this working. I tried to find short-cuts in vain.
My setup is pretty much the same, having Attiny85 on the TX end and UNO at the RX end.
Following are the few steps I have done differently, which didn't give me results in the first place. Hope this will help save a bit of anybody's time and frustration.
1) used Tiny AVR programmer (from sparkfun) to program the Attiny85 with the Manchester TX code. Code uploaded without an issue, but the receiver didn't recognize anything comming from the transmitter at all.
2) Used Arduino IDE 1.05 for programming both Attiny85 and UNO
I think, what made this work is the step to program the bootloader into Attiny85 using Arduino IDE 0022. I do not understand why but this one step seems to be the key. I tried to do the same with IDE 1.05 which failed.
Since now I have the results, I can further experiment understanding the fundamental issues which hindered the progress to start with. I do like to use the Tiny AVR programmer to upload the TX code to Attiny85 using latest Arduino IDE (1.05) and use the same IDE to do the receiver on UNO.