I am building a small device with its own CPU (AVR Mega8) that is supposed to connect to a PC. Assuming that the physical connection and passing of bytes has been accomplished, what would be the best protocol to use on top of those bytes? The computer needs to be able to set certain voltages on the device, and read back certain other voltages.
At the moment, I am thinking a completely host-driven synchronous protocol: computer send requests, the embedded CPU answers. Any other ideas?
Modbus might be what you are looking for. It was designed for exactly the type of problem you have. There is lots of code/tools out there and adherence to a standard could mean easy reuse later. It also support human readable ASCII so it is still easy to understand/test.
See FreeModBus for windows and embedded source.