If you go all the way back to the point where you first powered this board up and the on-board led blinked continuously, did it not occur to you that the processor already had a program loaded into its memory? Knowing there is a program loaded, it’s also likely there is a bootloader present?
After thirteen posts, you state you could not serially upload to this as a Lilypad board. Why should it? Trying to upload to a 16MHz board with a 8MHz definition isn’t going work, period. Now you’re off mucking about with something or the other when all you had to do was to try the Duemilanove board type.
At another point, you thought it was fuses. If board is running a sketch, why would you consider, even for a second, the fuses are wrong?
How do you know the board tester works? Did you test it on a known good board? It sounds like you have only a few boards and reflashing a board and lashing wires together every time you want to do something is not a good way to get things done. Buy a $3 usbasp and you’ve got a device to burn bootloaders with no fuss. Delicate a clone to your board tester function and use the same setup and cable every time. Doing it any other way just introduces unknowns every time you do something.
It seems to me your troubleshooting modus operandi is to ignore the obvious and start making assumptions. This quickly leads to loosing sight of the original problem you set out to solve.
I think you should consider yourself lucky you were unable to upload a bootloader. You need to ensure you’re solving the real problem with the appropriate solution. Anything else is just playing a guessing game.