Do you have pin 2 & pin 3 on the atmega pulled to ground through 10K resistors? I had a similar problem with a stand alone atmega8 and it was floating RX/TX pins causing the bootloader to think it was being talked to and not allowing program to run.
Do you have pin 2 & pin 3 on the atmega pulled to ground through 10K resistors? I had a similar problem with a stand alone atmega8 and it was floating RX/TX pins causing the bootloader to think it was being talked to and not allowing program to run.