Ok, first my apoligies, you should have gotton 1 hz with the code I posted. NOT 60 Hz. if the LED never turned off, well that is confusing. Maybe a typo somewhere?

On to more important stuff. with your code as posted (pause 250) you should get 2 hz. Is that what you are getting? pause 250 equals 2 Hz with OSC 20? If this is so, then I think you need to have OSC 20 as your define. Heres why I know:

pause uses OSC define to generate delays in software based on the OSC value. So when OSC matches actual pic speed the pauses will be the correct amount of time. 250 mSec on then 250 mSec of is 2 Hz.

So assuming make sure your DEFINE OSC is correct. Of course that doesn't address the fact that you say you get junk from serout when OSC is 20.