Don't enable the pullup on the target /RESET line in the AVRISP project for PDI mode - clearing the XMEGA's reset control register twice is enough to release it from reset. Possible silicon bug, since the official Atmel programmers have the same issue.

LUFA/ManPages/ChangeLog.txt

@@ -27,7 +27,7 @@
   *  - Fixed ADC routines failing to read the extended channels (Channels 8 to 13, Internal Temperature Sensor) on the
   *    U4 series USB AVR parts
   *  - Fixed PDI programming mode in the AVRISP programmer project not exiting programming mode correctly (clear target
-  *    Reset key twice, set /RESET pin to pullup)
+  *    Reset key twice, possible silicon bug?)
   *
   *  \section Sec_ChangeLog100219 Version 100219
   *

Projects/AVRISP-MKII/Lib/XPROG/XPROGTarget.c

@@ -237,19 +237,18 @@ void XPROGTarget_DisableTargetPDI(void)
 	UCSR1B  = 0;
 	UCSR1C  = 0;
 
-	/* Make Reset input with pullup to take target out of /RESET, tristate all other pins */
+	/* Tristate all pins */
 	DDRD  &= ~((1 << 5) | (1 << 3));
 	PORTD &= ~((1 << 3) | (1 << 2));
-	PORTD |=   (1 << 5);
 #else
 	/* Turn off software USART management timer */
 	TCCR1B = 0;
 
-	/* Make Reset input with pullup to take target out of /RESET, tristate all other pins */
+	/* Tristate all pins */
 	BITBANG_PDIDATA_DDR   &= ~BITBANG_PDIDATA_MASK;
 	BITBANG_PDICLOCK_DDR  &= ~BITBANG_PDICLOCK_MASK;
 	BITBANG_PDICLOCK_PORT &= ~BITBANG_PDICLOCK_MASK;	
-	BITBANG_PDIDATA_PORT  |=  BITBANG_PDIDATA_MASK;
+	BITBANG_PDIDATA_PORT  &= ~BITBANG_PDIDATA_MASK;
 #endif
 }