I was pulling my hair out trying to get my peggy 2 to upload. I was following the "how to" at http://www.evilmadscientist.com/article.php/PeggyArdLib
It said to select the board type in Arduino (I have version 0015) as the Diecimila, which there is an option to select Diecimila or Duemilanova w/ATmega168. Unfortunately, I didn't realize that this board no longer contains the ATmega168; it now contains the ATmega328. Users should select the Arduino Duemilanove w/ATmega328 and they will no longer have issues programming. I would also suggest updating the walk-through. Thanks.