i have ATmega328 with Arduino Optiboot (Uno) from sparkfun, however i don' know how to connect it to arduino in order to send a sketch to it. So far, i did it this way: http://arduino.cc/en/uploads/Tutorial/SimpleBreadboardAVR.png and i set to user "Arduino as ISP" and uploaded sketch. However, i have no clue if the sketch reached external Atmega328. I hooked LED on pin 13 and uploaded just a blink sketch, led blinks until arduino is hooked to breadboard and external chip. owever as i disconnect and connect external 5V power supply, it stops. At the same time, i see that LED on Arduino it self (the default one on pin 13) is also blinking.
You need to disable reset on the Arduino that is acting as your ISP. Otherwise it will reset at the start of the upload. I'm not sure whether it would then be possible for its bootloader to receive the uploading sketch and reprogram its own flash, but I suspect it is; if so, that would result in the sketch going to the wrong board. In any case, if the ISP Arduino resets, it would not be able to upload the sketch to the target Arduino.