Yeah, J3 is the Slow Clock jumper. I should have made that more clear.
Nah, that's fine. I've only got two jumpers on my variant, labled "S.C" and "PWR". Useful to know it's labeled J3 on some boards in case I'm trying to explain the S.C thing on a board with a different silkscreen.
In regards to when it stopped working, the board itself was used as a motherboard for a makerbot based 3d printer and I was installing and testing a new extruder (which is connected to a separate extruder controller through a RS485 connection) when the motherboard randomly shutdown and disconnecting from the serial port of the computer. Restarting didn't resolve the problem, and eventually exacerbated it.
So I decided to reinstall the firmware to see if that would fix it, and ran into the described error.
Sounds kind of like hardware to me, I must say. If you were having trouble programming via USB Serial, I'd think it might just be the atmegaU8 chip that's gone. But if the atmega2560 isn't responding to direct ICSP, then it's probably hosed for some reason or another.
The only faint possibility that occurs is that it might have had a transient high voltage spike on the reset pin that set it into high voltage programming mode, and now it is in a confused state. The only way to test that theory is try to program it with a HVP, but unfortunately, unless you know someone with one (I think the Atmel Dragon can do HVP), they are more expensive to buy than a new mega2560.
And of course it may not be that at all. It's just that I was reading a thread recently where a design flaw on the Uno R2 had a deficient reset circuit that could result in these sort of mysteriously bricked devices.
Anyway, while a new genuine mega is still quite expensive, the clones are now dirt cheap, so perhaps that's the quickest solution to at least get you up and going, and you can try to breathe life into your current mega as new theories and inspiration strikes at your leisure.
Sorry I can't offer more help. Perhaps someone could chime in with a new idea so far not considered.