AVRDUDE throws errors when attempting ISP with AVR Dragon
The Dragons have always had some problems - not that they're not great.  Start by making sure the firmware is up to date.  It can be updated in AVR Studio.  Then I'd make sure that your cable is correct (verify pin 1 goes to pin 1, pin 2 to pin 2, etc with a DMM) and after that ensure that you have pin 1 of the ISP headers hooked together.  Those things are easy to get the wrong orientation on.