Got some cheap Atmega8-16PUs cheap along with a USB to serial dongle for programming the chips. http://dx.com/p/jy-mcu-usb-serial-port-adapter-download-line-arduino-104322?item=42 http://dx.com/p/atmel-atmega8-16pu-avr-8-bit-microcontroller-chips-3-piece-pack-136056?item=1 The configuration passed the loopback test.
I connected it like so: RESET - 1 - DTR RXD - 2 - RXD TXD - 3 - TXD VCC - 7 - VBUS GND - 8 - GND
I selected the correct COM port, Arduino NG (Atmega8), AVR ISP. But when I try to burn the bootloader or upload a sketch the error: "avrdude: stk500_getsync(): not in syn: resp=0x00".