Can a m168 work with the blink sketch and have problems with a full program?
I'm starting to get the impression that the SparkFun processor is defective.Does your Sketch use the EEPROM?
However, if the Bootloader verifies the uploaded Sketch then my theory is trash.
The only thing I can think of is that something in the fuse settings is different on the Sparkfun chip than on the one from your Arduino. Either the Crystal Oscillator settings or the BrownOut detect could cause such failure to operate, I think. How sure are you of of the power supply and crystal circuitry on your external circuit?
I'm not sure how to check the fuses with the Arduino IDE