Everything works well - I can use my Uno to upload sketches (removing the chip from the uno of course) and sketches run as expected.
However I hit problems using an Arduino USB to Serial board (http://arduino.cc/en/Main/USBSerial) to upload sketches. This is supposed to work exactly like a FTDI cable and has the same pinouts.
When I attempt to upload a sketch the target resets as expected but the upload times out. The error is
programmer not responding.
"The USB Serial connector is designed in a way that allows it to reset an attached board by software running on a connected computer.The external reset line mirrors the DTR line of the virtual serial device on the computer. It's typically connected to the reset line of the connected board (e.g. an Arduino Ethernet board) through a 100 nF capacitor, allowing the board to reset on upload."
Added the cap in-line and it's working great. I was confused as the reset functionality was actually working. Perhaps the reset line was being held low for too long?
To be honest I am not sure what effect the capacitor is having, electronically, but it all works now.