Atmega328P and FTDI communication breakdown

I'm pretty much stuck at a problem with no hope in sight. I'm trying to communicate to an Atmega328P through an FTDI chip. It only works when VCC is brought up from 3.3V to 5.0v by shorting VUSB to VCC. When I remove the short and VCC drops back down to 3.3V I cannot get the Arduino IDE to get code into the 328P. I have tried putting an UNO bootloader in the 328P but only the Diecimila one works. Since the board has an at 8Mhz resonator I might put a Pro/ Pro mini (3.3V, 8Mhz) bootloader in next to see if that works.

1st schematic is too small to make things out.

Also, I've not seen Pin 4 on the USB connector connected to Gnd before. What's the purpose of that?

I just emailed you a larger schematic since I cannot figure out a way to attach pdf files to a post. I believe pin 4 is an ID or drain pin. I've always connected it to ground but maybe its not supposed to be. I'll check it out now.

To attach a file, click Reply, then
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Schematic attached

Schematic.pdf (358 KB)

Just went through the FTDI data sheet again. It looks like connecting FT232RQ pin 16 (3V3OUT) to VCC (3.3V) works.

Adobe says the file is damaged and can't be opened.
So were you just missing the power connection to the FTDI chip then?

The chip was powered but it was confused with my +3.3V on one side as VCC and +5V from the USB was on the other.

Figure 6.4 illustrates a USB bus power application with selectable external logic supply. The external logic
can be selected between +3.3V and +5V using the jumper switch. This jumper is used to allow the
FT232R to be interfaced with a +3.3V or +5V logic devices. The VCCIO pin is either supplied with +5V
from the USB bus (jumper pins1 and 2 connected), or from the +3.3V output from the FT232R 3V3OUT
pin (jumper pins 2 and 3 connected). The supply to VCCIO is also used to supply external logic.