Grounding of a PCB that communicates with a PC via USB or RS232
You need to connect all the grounds together in order for your setup to work correctly.


  Do I connect the GND of the atmega8 board to GND on the MAX232 board? I would prefer that it doesn't matter if the two boards are powered from the same PSU or separate.


If you connect the GND of the ATmega board to the GND of the MAX232 board, it doesn't matter if they have the same power supply or different ones. If you will have separate power supplies for both boards, you'd still need to connect the GNDs together.



Your hardware setup seems a bit more complicated than it could be. Currently, you have:

uC board TTL UART &lt;-&gt; TTL-to-RS232 &lt;-&gt; RS232-to-serial-USB &lt;-&gt; PC


Instead, you could do it simpler:

uC board TTL UART &lt;-&gt; TTL-to-serial-USB &lt;-&gt; PC