Hi TimL,
It sounds like you’re mostly doing everything right– I say “mostly,” because obviously something is still amiss, or it would be working. :)
It sounds like the auto-reset circuitry is working correctly, because it blinks for a bit when you try to program.
So far as I know, there’s no driver issue with MacOS 10.8; I’m using 10.8.3 right now.
One possible thing to check: If your Peggy has the Atmega328 chip, you probably need to select the “Arduinio Duemilanove with Atmega328” option in the boards menu.
And finally, are you getting any kind of error messages in the Arduino window?
