The problem was that I'm such an electronics newbie that I didn't know where to start. After reading through many web pages and forums, I was able to put together this Instructable. I wanted to have the information I learned all in one place, and easy to follow.
Comments and suggestions are welcome and appreciated as I'm still trying to learn all this stuff.
Fellow Instructable member, Janw mentioned to me that it's always a good idea to add a capacitor or 2 near your power. He mentioned using a couple of 100nF capacitors should work. I'm very grateful he pointed this out to me, because my first production circuit that I'm building upon this circuit, was having a little bit of strange behavior. So I hooked up one 10uF capacitor near my power, and it started behaving correctly! I don't know why it didn't affect my 'blinking LED' test, but I do know that I'm grateful for Janw for pointing this out to me. Thanks Janw.
Building upon the previous edit, I wanted to mention that Instructable member, kz1o brought out some more information regarding the capacitors. Please see his comment below, dated February 14th, 2010 @ 10:52 am.
Update - This Instructable is on Hack a Day!
Step 1: Parts needed
#1 - (Qty: 1) - ATMega328 chip with Arduino bootloader pre-installed ($5.50)
#2 - (Qty: 1) - 5VDC Switching power supply ($5.95)
(Note: If you don't use a switching power supply, you must add in a voltage regulator and a couple of capacitors...see below)
#3 - (Qty: 2) - 22 pF ceramic disc capacitors ($.24 / ea)
#4 - (Qty: 1) - 16MHz Crystal ($1.50)
#5 - (Qty: 1) - Power jack ($.38) (Optional)
#6 - (Qty: 1) - Breadboard (hopefully you have one laying around, but if not, here's one. ($8.73)
#7 - Small pieces of 22 awg solid wire. If you don't have any, you can probably pick some up at your favorite electronics store.
Total cost for above before tax/shipping: about $14 (not including breadboard).
Alternatives / options:
Option / Alternative #1:
If you want to use an existing power supply you have around the house, make sure it is between 5V - 16V. If you are not sure if it is a regulated switching power supply, then you must use the following components too:
#1 option - (Qty: 1) - 5V Voltage Regulator (or another similar 5V voltage regulator) ($.57)
#1 option - (Qty: 2) - 10 uF Aluminum Capacitor ($.15 / ea)
(See below reference links for how to hook them up)
Option / Alternative #2:
If you don't want to use standard items #3 and #4, you can replace those with:
#2 option - (Qty: 1) - 16 MHz Ceramic Resonator (w/cap) ($.54)
This part looks like a ceramic capacitor, and you hook the 2 outside pins up to where you would hook the crystal up (covered later in the Instructable), and the middle pin goes to ground. At least this is what I've read - I haven't tried it yet. But as you may note, it is a little cheaper to go this route. :)
Ok, let's start hooking stuff up!