The only thing I could think of is perhaps you have accidentally changed the fuse bits. The pre-programmed mcus are all set to use 8MHz clock. Maybe you have changed it to 16MHz by accident. To change the fuse bits back, use:
avrdude -c usbtiny -p m328p -B 250 -F -U lfuse:w:0xe2:m -U hfuse:w:0xd1:m -U efuse:w:0x06:m
then
avrdude -c usbtiny -p m328p -B 1 -F -U flash:w:firmware1.8.1.hex
to flash the firmware again.
Well you did mention that firmware 1.6 works, so I am not sure why 1.8 doesn't work. Do you see anything displayed on the LCD?