Electronic – ATmega328P 16MHz or higher clock output on CLKO pin

That's a really odd response you're seeing. Of course there's the obvious suggestion of: have you tried power cycling everything in the chain? (PC->STK200->devboard) But also, do you have another AVR programmer you can try? Do you have another ATmega328P you can try reading & writing? Have you ever been able to read fuse settings with any programmer?

Other things to try: Can you remove the crystal and see if you can communicate with the chip then? Does your programmer have the ability to adjust SCK speed? (the STK500 can do this, not sure about STK200) It may be the chip got in a really low speed mode.

As a last resort, you'll need to put the chip in a high-voltage programmer. I know at least the STK500 can do that, and there are a few circuits out there for hacking a HVP out of an Arduino or LPT port. I've had to resuscitate a few AVR chips that way because of an electrical glitch or I flubbed settings.

From the ATtiny85 Datasheet:

The mode of operation, i.e., the behavior of the Timer/Counter and the Output Compare pins, is defined by the combination of the Waveform Generation mode (WGM0[2:0]) and Compare Output mode (COM0x[1:0]) bits. The Compare Output mode bits do not affect the counting sequence, while the Waveform Generation mode bits do. The COM0x[1:0] bits control whether the PWM output generated should be inverted or not (inverted or non-inverted PWM).

Table 11-5 shows how to set the Mode.

Mode   WGM  WGM  WGM  Timer/Counter Mode    TOP      Update of    TOV Flag
c0     02   01   00   of Operation                   OCRx at      Set on
==========================================================================
0      0    0    0    Normal                0xFF     Immediate    MAX(1)
1      0    0    1    PWM, Phase Correct    0xFF     TOP          BOTTOM
2      0    1    0    CTC                   OCRA     Immediate    MAX
3      0    1    1    Fast PWM              0xFF     BOTTOM       MAX
4      1    0    0    Reserved              –        –            –
5      1    0    1    PWM, Phase Correct    OCRA     TOP          BOTTOM
6      1    1    0    Reserved              –        –            –
7      1    1    1    Fast PWM              OCRA     BOTTOM       TOP

You want a Fast PWM mode (so either mode 3 or mode 7). If you want to vary the duty cycle, and it sounds like you do, you want mode 7 and vary duty cycle by setting OCRA.

Table 11-3 shows how to set the compare output mode for Fast PWM mode.

COM0A1/   COM0A0/
COM0B1    COM0B0     Description
===============================================================================
0         0          Normal port operation, OC0A/OC0B disconnected.
0         1          Reserved
1         0          Clear OC0A/OC0B on Compare Match, set OC0A/OC0B at BOTTOM
                     (non-inverting mode)
1         1          Set OC0A/OC0B on Compare Match, clear OC0A/OC0B at BOTTOM
                     (inverting mode)

That is to say, you can set the OC0A output to go low when the Timer value == OCR0A and high when the Timer value == 0x00 by setting COM0A1:COM0A0 = 0b10. Or vise versa by setting COM0A1:COM0A0 = 0b11. And likewise for OC0B, OCR0B, COM0B0, COM0B1.

The PWM frequency is determined by the I/O Clock (8MHz it sounds like for you) and your timer prescaler setting. And the equation is given as f_clk_IO / (N * 256) for Fast PWM mode.

So you can use OC0A for "normal" polarity and OC0B for "inverted" polarity by setting OCR0A and OCR0B to the same value and setting COM0A1:COM0A0 = 0b10 and COM0B1:COM0B0 to 0b11.

UPDATE

Given you want to toggle the output as fast as possible and you are using the Mega328 operating at 16MHz, the CTC operating mode will allow you to obtain a switching frequency of:

f_OCnA = f_clk_IO / (2 * N * [1 + OCRnA) = 16e6 / (2 * 1 * [1 + 1]) = 4MHz

The Fast PWM mode will let you toggle the pin at:

f_OCnxPWM = f_clk_IO / (N * [1 + TOP]) = 16e6 / (1 * [1 + 1]) = 8MHz

So I still think you want Fast PWM mode. Specifically Mode 3 with OCR0A = OCR0B = 0x80 for 50% duty cycle. And set COM0A bits to 0x3 and COM0B bits to 0x2 to make the two waveforms on OC0A and OC0B inversions of one another.

Update #2 More the Mega328 Try this Arduino code:

#define tick 9
#define tock 10

void setup(){

  pinMode(tick, OUTPUT);  
  pinMode(tock, OUTPUT); 

  // Setup Waveform Generation Mode 15
  // OC1A Compare Output Mode = inverting mode
  // OC1B Compare Output Mode = non-inverting mode
  // Timer Prescaler = 1
  // TOP = OCR1A = 1

  //COM1A[1:0] = 0b11, COM1B[1:0] = 0b10, WGM1[1:0] = 0b11
  TCCR1A = _BV(COM1A1) | _BV(COM1A0) | _BV(COM1B1) | _BV(WGM11) | _BV(WGM10);

  //WGM1[3:2] = 0b11, CS1[2:0] = 0b001
  TCCR1B = _BV(WGM13) | _BV(WGM12) | _BV(CS10);

  OCR1A = 0x0001;
  OCR1B = 0x0001;
}

void loop(){

}