I found posts from other people, posted long ago, about the boards.txt file being wrong for Arduino 1.0, and it is STILL wrong.
In the file it says
ethernet.upload.protocol=stk500
but to makt it work, it should be
ethernet.upload.protocol=arduino
The file can be found in the bottom of http://arduino.cc/en/Main/ArduinoBoardEthernet "Arduino 1.0 Beta | boards1.0.txt"