That code is for using one Arduino running a sketch to bootload another Arduino.
Not for using an AVR ISP Programmer to bootload a device/Arduino.
If you want to use that sketch, then yes, reset needs to come from pin 10 on the Arduino that is running the bootloading sketch.
I am not sure what the problem is with the USB Tiny device.
Some programmers do have problems with the large memory devices like a Mega2560.
I do a lot of messing around; after the first couple of projects, you come to realize that good tools make a world of difference. I use Atmel AVR ISP MKii for all my bootloading and thus do not have all the issues that come up way too often here with folks trying to get other methods to work.http://www.mouser.com/ProductDetail/Atmel/ATAVRISP2/?qs=%2fha2pyFadujqFzV%252bExzQOlFEGuFbE5zkYm9OzGvRqkjeoy23MLFzjw%3d%3d
Price has been creeping up, about $1/year since I bought mine in early 2011.