This means you have selected the wrong item from the Tools | Microcontroller menu. Make sure that the selected microcontroller corresponds to the one on your board (either ATmega8 or ATmega168)-the name will be written on the largest chip on the board.

Check for a noisy power supply. It's possible that this could cause the chip to lose its sketch.

Alternatively, the sketch may be too big for the board. When uploading your sketch, Arduino 0004 checks if it's too big for the ATmega8, but it bases its calculation on a 1 Kb bootloader. You may have an older bootloader that takes up 2 Kb of the 8 Kb of program space (flash) on the ATmega8 instead of the 1 Kb used by the current bootloader. If yours is bigger, only part of the sketch will be uploaded, but the software won't know and your board will continually reset, pause, reset.

If you have access to an AVR-ISP or parallel port programmer, you can burn the latest version of the bootloader...