It seems you are not familiar with this USBtinyISP device.
It's supposed to:
- Upload a "sketch" to an ATmega328 through the ICSP
- Burn a bootloader through the ICSP
I can "understand" both not working, but not one or the other.
Kind of a wild guess: I figure the fault here is not hardware, but firmware.
Anyway, I've posted regarding the matter at Adafruit.
I hope someone there can lead me to the answer.