As Joby Taffey suggests, the rx & tx pins of the AVR are 2 & 3 respectively, but on the Arduino headers they are pins 0 & 1. You also want to connect DTR to the reset pin of the arduino to enable automatic programming.
FTDI Arduino
Breakout (5V)
GND <--> GND
CTS <--> (not connected)
5V <--> 5V (if you want the breakout to power the arduino)
TXO <--> RX (pin 0)
RXO <--> TX (pin 1)
DTR <--> RESET (possibly through a 100nF cap*)
On the FTDI TTL232R cable, DTR is not present so you have to manually reset the board before flashing. By default the Arduino will stay in the bootloader for 6-8s, but some boards rely on the automatic reset and have much shorter timeouts (0.25s say). For these boards, set upload.verbose = true
in your Arduino conf file, and learn to time the reset the moment the software attempts to flash the board.
* Arduino Wiki