Been having trouble using my Arduino as a ISP to load the bootloder on other Atmega168 chips, and the Attiny45/85s.
And have been advised
I think solution to your problem in signature lies in the avrdude.config file which is in the mainfolder of your arduino software change the signature of Atmega168 in this file to 0F and it will work fine.
SO.......where do I find the avrdude.config file to edit it???? (Im on a mac, and nothing shows up when I search with spotlight)
I know I'm years late responding to this, but I found that it is really helpful to turn on the build.verbose option in the Arduino app. This way, you get to see in full detail what it's doing when you compile and download a sketch, including running avrdude, etc.
To enable the build.verbose option:
In the Arduino app, click on Arduino > Preferences
In the preferences panel, look at line that says "More preferences can be edited directly in the file...
Quit the Arduino app (important!)
With your favorite plain-text editor, open the preferences file that the Arduino app specified.
Find the line that says build.verbose=false and change it to build.verbose=true
Save the file and re-start the Arduino app
Now, next time you build and download your sketch, you'll see all the commands that the Arduino IDE is emitting. It includes the fully qualified pathname arguments to avrdude, including (for the OP) the pathname to the avrdude.conf file.