cantlow:
can anyone sugegst how this process should work for an Arduino Uno and an atmega168 20PU on the breadboard.
You may have missed the reference on http://arduino.cc/en/Tutorial/ArduinoToBreadboard in which they specifically state the breadboard approach does not work with the Uno.
Note that these techniques only work with the Arduino Duemilanove w/ an ATmega328, not the Arduino Uno (or older Arduino boards w/ an ATmega168).