Thanks fungus - came to the same solution yesterday.
I did have reset mis-wired but still no go upon correction. Frankly, I have an old stk200 board (1989?) and found the kanda system also rather frustrating when combating serial and parallel port OS resets to which they would always reply "ours works with no problems" - all the 1000's of customers were left to discover fixes themselves. That along with the early 2313 having eeprom memory loss (finally admitted to in an errata) led me to put the whole thing aside.
I was generally pleased with the arduino experience, so now the plan of attack was 1) see if others have encountered the problem, 2) give it a good effort try but set a definite deadline (3 days), 4) give in, and buy another dedicated programmer 
Feedback is still important though, and anyone who has had failure or success with a nano as programmer would be helpful.
A few other descriptions of my system:
winxp on hp laptop w/os current
attiny85's bought off ebay - "new" but tried w/ and w/out xtal connected (shouldn't spi programming be unaffected by osc fuse setting? - need to find out).