Problems

[Michael]

The voltage regulator output pin is the leftmost pin, and the GND is the center pin. There should be 5V across them. Sounds like your voltage regulator is outputing 5.8V? That's much higher than the datasheet would indicate:
http://www.jameco.com/Jameco/Products/ProdDS/51182.PDF

The ATmega328 should tolerate 6V maximum, but the datasheet indicates that input voltage should be 4.5-5.5V. I wonder if the regulator is bad.

[Roybie]

Yeah the regulator is outputting between 0.5-1V over what it should.

My power supply is giving like 10-10.5V though even though it's a 9V supply, might this cause it?

(Edit: Just tried with a more reliable power supply, same output from the regulator)

Tried all the other suggestions and still nothing.

[Michael]

If the voltage across the middle pin and left pin (as viewed from the top) of the voltage regulator is that high, then I think it is defective or damaged. I tested a bunch of vregs from the same batch I sent to the UK, and the output was always between 4.99 and 5.02V. I'm not sure if that higher output of 5.8V to 6V would cause problems with the ATmega, but it certainly could -- especially since you said you measured 8V once at the ATmega.

One more step I'd like you to take: can you send me a picture of your 9V adapter label? I just want to double check it. Just email it to michael @ nootropicdesign.com

I think the best course of action is that I replace your whole Hackvision. We'll work it out over email.

As for the adapter -- an unregulated power supply will output significantly higher voltage than advertised when there is no load. My 9V supply outputs over 12V with no load. When attached to a Hackvision, the output measures over 10V, so your experience is normal.