2. General digital noise. Cured by adding a capacitor from AREF to GND and using the appropriate analog reference setting
Interestingly I found a difference in behaviour between my clone serial rs-232 mega328 board and my Seeeduino mega board.
The 328 board using standard arduino AVcc reference and using simple analogRead() statements, did show a few counts of noise on typical reads, that was improved pretty well by wiring a .1 mfd cap from Aref pin to ground. The Seeeduino mega on the other hand showed no noise even without a cap.
Not sure the difference is because of different processor chips or just differences in board layout.