>
>>
> Now I hit program flash with a hex file.The mega8515 is programmed,and its
> flash is verified.(I can see the progress bar)
>
> After this I again try to read the mega8515 but now ponyprog and
> codevision cant read the device.
> I therefore put a fresh mega8515 and it is recognised by both(so no
> problem with the flasher ckt) but not the already 'fused' mega.
> Have I done anything wrong here
> Please help
>
What about lock bits 1 and 2? they will lock you out. Put the processor in 
and click 'erase ' and see if you can now read the CPU...... 

I am a new AVR user.I am having a similar problem.I'll explain
1)My programmer is STK200 based.I am using LPT1 pins as below
6=SCk
7=MOSI
9=RST
10=MISO
2 and 12 shorted
3 and 11 shorted

Now I have pony prog as well as Codevision's inbuilt programmer.
Before flashing this IC i tried reading its flash/eeprom etc and good,both
softwares read the mega8515.
Now I am using external xtal 4MHz so
(in codevision,I checked) CKOPT CKSEL3 2 1 0 SUT1
I did not touch Boot Lock Bit0 and Bit1 (default setting is B01=B02=1 and
B11=B12=0)

Now I hit program flash with a hex file.The mega8515 is programmed,and its
flash is verified.(I can see the progress bar)

After this I again try to read the mega8515 but now ponyprog and
codevision cant read the device.
I therefore put a fresh mega8515 and it is recognised by both(so no
problem with the flasher ckt) but not the already 'fused' mega.
Have I done anything wrong here
Please help