Hi again,
Ok, i got the chips today (late late in the day) and tried the burn bootloader and it seems to work pretty well. It's just a little tricky at first because there is conflicting information on the web. For example, we dont use a 10uf cap on the reset pin of the Uno board, but we do use a pullup resistor on pin 1 of the new Atmel chip to be programmed (supposed to be 10k but i used 22k and it worked ok).
Also, the IDE setup is a little strange because we first have to upload the ArduinoISP sketch, compile it, then upload it to the Uno board ('programmer' set in the IDE to standard AVRISP mkII ) and that is before making any external connections. Then cut power and then the new chip is connected via plugboard and jumpers, then restore power then burn bootloader (using 'programmer' as Arduino as ISP this time).
So there are a couple of steps to follow.
Also, the test sketch loaded after that too using the "Upload using Programmer" menu command after compiling the test sketch "Blink".
[LATER]
Note the above part of this post was in reference to the Atmega 328 chip.
I found that the 10uf cap seems to be needed for programing of the ATTiny85 chip. First try without it failed, and only after power down and adding the cap then power up and closing out the IDE and opening it again did the Blink sketch (with LED pin change) upload properly.
So apparently the Uno board can be used to program the Atmega 328 chip and also the ATTiny85 chip. Not too bad i guess.