Which programmer did you choose in the menu?
AVR ISP or AVRISP mkII ?
Your Olimex ISP programmer uses the stk500v2 protocol, so you have to choose AVRISP mkII.
With a serial (original Atmel) stk500v2 I had some problems because the baud rate was wrong. I had to recompile the IDE for fixing this, because the AvrdudeUploader.java uses the upload speed specified in the boards.txt file and my programmer doesn't like -b options with avrdude...
I read the manual of your programmer and it seems as if the programmer gets a virtual com port.
So add this entry to the programmers.txt in the hardware folder:
At first, I had the same problem with my olimex isp, but then I did the modifications to the programmers.txt. Everything seemed fine, but when I hit the Burn Bootloader button in the Arduino IDE, it jams. It does nothing and stays and lags there forever. Now, I do know that burning the bootloader may take a while, but it is not showing any response whatsoever. And it just can't take more than hour can it! What should I do, can someone please help?