Uploading problem with software V 1.0.1

Had a Mega 2560 for a while and everything worked fine with software version 0022. Upgraded recently to version 1.0.1 and cannot upload anymore. When trying to upload over USB, the previously-loaded sketch stops running on the board, the red LED flashes once and the green LED flashes once every 5-7 seconds forever, with nothing else happening. Unplugging and plugging the board back in restores the old sketch. When trying the same thing with V 0022 everything works fine again.

Is this a bootloader compatibility issue and is there something I can do about?

The only difference I see between the settings of the two programs is that V 0022 has no Programmer selected from the list while V 1.0.1 has the AVRISP mkII selected.

I tried this on two different computers running Windows 7.

I experienced the same issue with 1.0.1. I still don't found the cause, but I build a wrapper for avrdude that at least tries to fix it when it happens: http://arduino.cc/forum/index.php/topic,118440.0.html

With 0023 I don't have issues.