CrossRoads:
Did you connect the CTS input on the FTDI breakout to Gnd also?
No, I haven't seen that mentioned anywhere to do so I will try it. I tried various caps from 1nf to 1uf, though I picked up some .1's at radioshack today so I will try that on the DTR.
As far as power goes I am just powering up using the USB power (the breakout board has some power conditioning built in)