Are you using the ArduinoISP sketch with Arduino 1.0 by any chance? I recently chased down a problem I was having very similar to yours - avrdude "writing..." to about 96%, then failing. This thread has the details.Try using a pre-1.0 Arduino IDE (0022 or 0023) to build and upload ArduinoISP. Alternately, the user Coding Badly is offering a patched version of ArduinoISP in that thread that should work with 1.0.
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