Hi Hirsh
"firstly the programmer voltage (Vpp) of 12V drops to around 4V during programming (i.e when the chip is inserted)"
Your 89C51 chip must be bad and overloading the programmer. Try a new 89C51 chip.

What operating system are you using for the programmer software, there are problems with most programmers if you use WindowsXP, it doesn't allow you to access the hardware. I always have both winxp and win98 on my pc in case i needed to use a programmer that only works on win98.
Regards
Mahmood