Thanks retrolefty
This is the cable which I am using FTDI Cable 5V - DEV-09718 - SparkFun Electronics
It does make the RTS control signal available and I do have it wired in series with a cap to the reset pin on the 328. If i monitor the voltage on the reset pin it is being brought down when I try and upload the sketch so I am quite sure this is working correctly. I also tried to perform a manual reset just before pressing upload button but still the same error. Because I have the blink sketch on the chip I can see the reset event when it is fired because the led I have hooked up for the blink sketch flashes erratically when reset.