Can anything be done about this AVRISP mkII or is it dead?
I had a similar issue with the AVR ISP MKII when I first got it. I connected up the programmer, turned on the board (which was powered from an adjacent USB port), and pop.

On my board the regulated as highlighted n @Raj's answer failed, quite spectacularly actually, burned a hole in the IC epoxy.

After some research I tracked down that it was a TPS61020 DC-DC converter IC from TI. I also measured the resistor values and determined that it is actually being used to generate 5V from a 5V rail which seems kind of pointless to me, but there you go.

Fortunately I was able to fix it my one (I bought it in clearance so couldn't return, hence having nothing to lose trying to fix it).

The first step was to remove the IC completely. It's quite tricky to do due to the large thermal pad and tight space as you can see from the photo below. In the end I chipped away all of the epoxy of the IC to get down to the metal lead-frame allowing me to get the soldering iron in to heat it.



Once removed rather than replace the IC which would have been difficult to resolder, I bridged a piece of wire between the bottom right corner pad of the inductor, an the positive terminal of the large tantalum capacitor as shown below. This bypasses the IC completely while also keeping the inductor in place for noise filtering (whether it is strictly necessary, I don't know, but it was the easiest place to bridge).



I checked for shorts, finding none I powered it up (I used a current limited 5V supply first to make sure I didn't fry my USB port). And that was all it took. One fully functioning AVR ISP MKII.



While I was at it, I also added a 1N4148 diode and 2.54mm jumper header as shown below. This allows the AVR ISP to power the target device from the USB port when the jumper is in place. When the jumper is removed the behaviour is as standard with the target device being self powered and setting the IO voltage.

The diode anode is connected from the 5V pin of the USB port (make sure not to short to anything else nearby!). The cathode connects to my jumper. The other side of the jumper then connects to the cathode of diode in the bottom right corner of the AVR ISP board.