How can I get my atmega328 to run for a year on batteries?
The Atmega328 provides six power saving modes, ordered from minimal to excellent (estimated current consumptions from this forum post):


SLEEP_MODE_IDLE: 15 mA
SLEEP_MODE_ADC: 6.5 mA
SLEEP_MODE_PWR_SAVE: 1.62 mA
SLEEP_MODE_EXT_STANDBY: 1.62 mA
SLEEP_MODE_STANDBY : 0.84 mA
SLEEP_MODE_PWR_DOWN : 0.36 mA


Quoting the original question:


  I figured I could put sleep calls for certain times inside the loop method"


You would need to use sleep_cpu() after setting up the sleep mode you require, from the list above. The Arduino Playground has a useful post about this. 

The application needs to be interrupt driven, use the above sleep modes extensively, and wake the processor up on button push, timer overflow and watchdog timer events to actually execute tasks.

Additional power savings can be obtained through the following steps:


Use the microcontroller's internal oscillator and a low clock rate (8MHz instead of 16) - but ensure that time and timing related code still works as expected. A different version of the bootloader might be needed for this.
Avoid keeping LEDs on for long if the application uses them. Using a rapid double or triple flash of short duration (0.05 second on, 0.5 second off), with gaps of seconds in between, ensures noticeable indication with minimal power consumption
Use a switching regulator instead of a linear one, if a regulator is required.
Run the microcontroller at lower voltage if supported, 3.0 Volts (e.g. CR2032 Lithium cell, no regulator needed) or 3.3 Volts instead of 5 Volts.
Follow recommendations in the datasheet for unused input and output pin settings for minimum power wastage.


Incorporating these suggestions allows for running microcontroller applications for weeks or months on a single CR2032 coin cell, and years on a LR123 type lithium cell. Of course, your mileage may vary depending on what sensors, outputs and actual processing your application requires.

Some useful references:


Hush little microprocessor… AVR and Arduino sleep mode basics
Adventures in Low Power Land - Sparkfun tutorial
Power saving techniques for microprocessors (forum post)