Arduino bootloader not working!

Hi,
I am trying to make this stand-alone arduino and followed everything as per http://www.arduino.cc/en/Main/Standalone. The process is sucessful but the bootloaded microcontroller, in my case ATmega8 and ATmega328 can only be programmed ONCE from the bootloader. That is, after uploading the bootloader to my board, the USB to RS232 convertor can only program the chip once and after that it gets stuck with this message.

         System wide configuration file is "/etc/avrdude/avrdude.conf"
         User configuration file is "/home/samarpan/.avrduderc"
         User configuration file does not exist or is not a regular file, skipping
         Using Port                    : /dev/ttyUSB0
         Using Programmer              : arduino
         Overriding Baud Rate          : 57600
avrdude: Send: 0 [30]   [20] 
avrdude: Send: 0 [30]   [20] 
avrdude: Send: 0 [30]   [20] 
avrdude: ser_recv(): programmer is not responding
avrdude: stk500_recv(): programmer is not responding
avrdude: stk500_getsync() attempt 1 of 10: not in sync: resp=0x00
avrdude: Send: 0 [30]   [20] 
...
....

I programmed the bootloader using USBasp option from the IDE. Does anyone has any clue what’s happening?

The "programs once" is symptomatic of not having auto reset working properly.