We are in the process of building some projects with an embedded Arduino, instead of using a Arduino board. Hacktronics.com sent us some new Atmel 328-PU chips for this purpose. These chips are new, without a bootloader installed. The bootloader is the difference between a Bare Atmel, and an Arduino. It's what allows the Arduino IDE to upload sketches.
Now the chip that comes on the Arduino UNO and Duemilanove is the Atmel 328P-PU. This is the picopower chip. We received the 328-PU. They have a different signature, so additional steps needed to be taken.
First we wired up a Arduino on a breadboard per the instructions at http://arduino.cc/en/Tutorial/ArduinoToBreadboard.
You can get the parts at Bare Bones Arduino
I used my older Duemilanove as the Host, as the instructions say this process does not work with an UNO.
There is a process if you use a UNO as the Host, I did not have one handy - http://electronics.stackexchange.com/questions/10587/how-to-burn-atmega328-chip-via-arduino-uno-as-isp
When burning the boot loader, we ran into a error because the signature of the chip was wrong. So we followed the instructions at http://arduino.cc/forum/index.php?topic=58670.0 regarding editing the avrdude.conf file from 0F to 14 while burning the bootloader. Don't forget to set it back after the bootloader is burned. It doesn't need the change to upload sketches. You may not have to do this if you use the above Optiboot process.
Now we have several Atmel 328's with the bootloader installed, ready to go into projects. Stay tuned!