The first thing to check is that you are pulling P2.6 AND P2.7 high during reset. If you don't, the device won't function properly in ISP mode. Are you doing that?
What crystal frequency are you using? If you are above 6MHz then make sure you are starting off with 9600 baud and you have high speed communications turned off in the Advanced Options. If you are below 6MHz then keep reducing the baud rate. Make sure you reset the device after each try.
If that doen't help, then set up hyperterminal to use 8 bits, no parity, 1 stop bit, no flow control, 9600 baud and send a single uppercase 'U'. Is it echoed back from the device? If not then use a scope to see if the 'U' is making it to the RxD pin of the device.