Does the boot loader disable the watchdog timer for some reason?
I don't know the answer to this question as I didn't write the bootloader, but I have a few thoughts that might help . . .
The bootloader is automatically activated after the Axon resets. If I remember right, the bootloader waits about 0.3 seconds before moving out of the bootloader section.
Looking at the bootloader code, it appears the earlier version doesn't account for the watch dog timer. The later 2.1 version has this assembly code in it below. Since you have a STK500, try uploading
the latest bootloader I compiled and see if it works. If it doesn't I'll look into it further.
;------------------------------ check, if watchdog active ----------------
wdr
xin a0, WDTCSR
ori a0, 1<<WDCE ; change enable
ldi a1, 1<<WDE^1<<WDP2^1<<WDP1^1<<WDP0 ; 2s
xout WDTCSR, a0
sbrc a0, WDE
xout WDTCSR, a1
;-------------------------------------------------------------------------