Because the +V was connected to GND, Pin5 (through R2) and Pin4 (through D1 and R1), the only voltage path I can see is through D2 (reversed) and D3. Since D2 is blown (short, I assume), D3 would have taken a fair hit too - how is it?

And 1.8V can still be High to a 328P. According to the datasheet, V_IL (Input Low) is maximum 0.3V_CC (or 1.5V), and V_IH (Input High) is minimum 0.6V_CC (or 3.0V). So 1.8V is in-between.

Because the +V was connected to GND, Pin5 (through R2) and Pin4 (through D1 and R1), the only voltage path I can see is through D2 (reversed) and D3. Since D2 is blown (short, I assume), D3 would have taken a fair hit too - how is it?

And 1.8V can still be High to a 328P. According to the datasheet, V_IL (Input Low) is maximum 0.3V_CC (or 1.5V), and V_IH (Input High) is minimum 0.6V_CC (or 3.0V). So 1.8V is in-between.

EDIT: Just because the Arduino was being powered by the jack shouldn't have caused any problems because V1- wasn't anywhere near Arduino ground. Yes you had V1+ connected to the Arduino ground, and a totally independent circuit going to V1-, but V1+ wasn't relative to the Arduino at all - or am I wrong?

Because the +V was connected to GND, Pin5 (through R2) and Pin4 (through D1 and R1), the only voltage path I can see is through D2 (reversed) and D3. Since D2 is blown (short, I assume), D3 would have taken a fair hit too - how is it?

And 1.8V can still be High to a 328P. According to the datasheet, V_IL (Input Low) is maximum 0.3V_CC (or 1.5V), and V_IH (Input High) is 0.6V_CC (or 3.0V). So 1.8V is in-between.

Because the +V was connected to GND, Pin5 (through R2) and Pin4 (through D1 and R1), the only voltage path I can see is through D2 (reversed) and D3. Since D2 is blown (short, I assume), D3 would have taken a fair hit too - how is it?

And 1.8V can still be High to a 328P. According to the datasheet, V_IL (Input Low) is maximum 0.3V_CC (or 1.5V), and V_IH (Input High) is minimum 0.6V_CC (or 3.0V). So 1.8V is in-between.