Try tying grounds together. Multi power source serial garf is almost always caused by uncommon ground.
Ok, just a hunch. Try wiring an external pull-up resistor of say 10k ohms between +5vdc and arduino pin 0. Try your sketch and see if it works.
If it doesn't work just ignore me
Does it work if you disconnect the FTDI cable after you're done downloading the sketch?
The official duemilanove board has a 1k resistors between the FTDI chip and the AVR serial port pins that theoretically aid in sharing the serial port between the PC connection and other devices that you might connect to the pins. The minimalist boards like the RBBB don't have these resistors
I SERIOUSLY LOVE YOU GUYS (not in a touchy/kissy way I mean more fraternal yeah?)
So ... why does it work with a 1K resistor between pin 0 and +5VDC?!