update so far:
Well i got bootloader running and could upload using Uno without p328 fitted. All fine and good.
But couldn't use my at90usb162 usb>serial just wouldn't talk.
Tried millions of thing ie fixed it till it broke

Till finally i cut off mcu and put another on but didn't change anything !!! Bugger. Turned out dragon was at fault...doh.
Well i didn't notice but AVR dragon started to have a problem using ISP. At first thought my fault then pcb everything other but dragon. (if you own one and don't know READ this
http://www.aplomb.nl/TechStuff/Dragon/Dragon.html) Simple fix little dirty once broken, still working again now.
Well where i'm at.
Well i can compile code no errors. I found adding
atmega88: LDSECTION = --section-start=.text=0x1e00
Now this is one problem i have. I just can't remember what worked.
Boot flash size 256 words boot address=$0f00
which $0f00(word)*2=0x1e00
# ATmega88
atmega88: TARGET = atmega88
atmega88: MCU_TARGET = atmega88
atmega88: CFLAGS += '-DLED_START_FLASHES=3' '-DBAUD_RATE=115200'
atmega88: AVR_FREQ = 16000000L
atmega88: LDSECTION = --section-start=.text=0x1e00
atmega88: $(PROGRAM)_atmega88.hex
atmega88: $(PROGRAM)_atmega88.lst
atmega88_isp: atmega88
atmega88_isp: TARGET = atmega88
atmega88_isp: MCU_TARGET = atmega88
# 2.7V brownout
atmega88_isp: HFUSE = DD
# Low power xtal (16MHz) 16KCK/14CK+65ms
atemga88_isp: LFUSE = FF
# 512 byte boot
atmega88_isp: EFUSE = 04
atmega88_isp: isp
And other problem i have 'Fuses'
I have EXT=0xFC High=0xDD Low=0xFF . 04 EXT/efuse just wouldn't take in studio.
Lockbit=0xCF LPM/SPM locked other s all open.
I'm using AVR Studio to flash+dragon. When i use avrdude+ 'make atmega88_isp' Get error from 'atmega88_isp: HFUSE = DD' coming out as '0x' on verify.
I've read so much totaly lost as to what right.
Well i did try and make sure hardware was working and as much as i can tell its fine

Used isp to upload blinky and something for serial out put. I can read TX line in IDE using uno.
Thanks, Phil