Breadboard Arduino Problems

This is of note and should be made into a sticky: the 328 has internal caps on the clock inputs.
It works with a a 16mhz crystal installed between the two pins. There is no need for caps and a ceramic oscillator doesn't work.

While you may have got yours to work, we shouldn't let this statement stand for others to use in the future, let alone make it a sticky.

  1. While the 328 AVR pins 9 & 10 each do exhibit some amount of capacitance to ground, it is not generally enough to let crystals work accurately at their specified frequency, and may cause fail to start up or sluggish starting. Even if a crystal will oscillate without using external padding caps, accuracy will suffer somewhat without the use of external padding caps such that the total capacitance (internal + external) are what the crystal was specified to work with.

  2. Three pin ceramic resonators do work with the 328 processor, and yes they have internal padding capacitors wired from the outside pins to the middle pins, just be sure to ground the middle pin. I have at least two 328 processors using ceramic resonators and they work just fine, they just don't quite have the accuracy of a crystal resonator, but in most cases that is not an important issue.

Lefty