OK! I got creative and pretty much re-write my ~/.mutt/gpg.rc, ct now
contains the following:

# vim: syntax=muttrc

# -*-muttrc-*-

# These settings are from /usr/share/doc/mutt-1.5.21-r1/samples/gpg.rc
#
set pgp_sign_as=0xD5B20C0C
#set pgp_sign_as=0x6748EE46C7D11FB8DA89E4AEECD9A84D5B20C0C
#set pgp_sign_as=0xeecd9a84d5b20c0c

#set pgp_decode_command="gpg --status-fd=2 %?p?--passphrase-fd 0? --no-verbose 
--quiet --batch --output - %f"
#set pgp_verify_command="gpg --status-fd=2 --no-verbose --quiet --batch 
--output - --verify %s %f"
#set pgp_decrypt_command="gpg --status-fd=2 %?p?--passphrase-fd 0? --no-verbose 
--quiet --batch --output - %f"
#set pgp_sign_command="gpg --no-verbose --batch --quiet --output - 
%?p?--passphrase-fd 0? --armor --detach-sign --textmode %?a?-u %a? %f"
#set pgp_clearsign_command="gpg --no-verbose --batch --quiet --output - 
%?p?--passphrase-fd 0? --armor --textmode --clearsign %?a?-u %a? %f"
#set pgp_encrypt_only_command="pgpewrap gpg --batch --quiet --no-verbose 
--output - --encrypt --textmode --armor --always-trust -- -r %r -- %f"
#set pgp_encrypt_sign_command="pgpewrap gpg %?p?--passphrase-fd 0? --batch 
--quiet --no-verbose --textmode --output - --encrypt --sign %?a?-u %a? --armor 
--always-trust -- -r %r --"
#set pgp_import_command="gpg --no-verbose --import %f"
#set pgp_export_command="gpg --no-verbose --export --armor %r"
#set pgp_verify_key_command="gpg --verbose --batch --fingerprint --check-sigs 
%r"
#set pgp_list_pubring_command="gpg --no-verbose --batch --quiet --with-colons 
--list-keys %r"
#set pgp_list_secring_command="gpg --no-verbose --batch --quiet --with-colons 
--list-secret-keys %r"
##set pgp_good_sign="`gettext -d gnupg -s 'Good signature from "' | tr -d '"'`"
#set pgp_good_sign="^\\[GNUPG:\\] GOODSIG"
#

# These settings are from http://wiki.mutt.org/?MuttGuide/UseGPG
#
set pgp_decode_command="gpg %?p?--passphrase-fd 0? --no-verbose --batch 
--output - %f"
set pgp_verify_command="gpg --no-verbose --batch --output - --verify %s %f"
set pgp_decrypt_command="gpg --passphrase-fd 0 --no-verbose --batch --output - 
%f"
set pgp_sign_command="gpg --no-verbose --batch --output - --passphrase-fd 0 
--armor --detach-sign --textmode %?a?-u %a? %f"
set pgp_clearsign_command="gpg --no-verbose --batch --output - --passphrase-fd 
0 --armor --textmode --clearsign %?a?-u %a? %f"
set pgp_encrypt_only_command="pgpewrap gpg --batch --quiet --no-verbose 
--output - --encrypt --textmode --armor --always-trust --encrypt-to 0xC9C40C31 
-- -r %r -- %f"
set pgp_encrypt_sign_command="pgpewrap gpg --passphrase-fd 0 --batch --quiet 
--no-verbose --textmode --output - --encrypt --sign %?a?-u %a? --armor 
--always-trust --encrypt-to 0xC9C40C31 -- -r %r -- %f"
set pgp_import_command="gpg --no-verbose --import -v %f"
set pgp_export_command="gpg --no-verbose --export --armor %r"
set pgp_verify_key_command="gpg --no-verbose --batch --fingerprint --check-sigs 
%r"
set pgp_list_pubring_command="gpg --no-verbose --batch --with-colons 
--list-keys %r"
set pgp_list_secring_command="gpg --no-verbose --batch --with-colons 
--list-secret-keys %r"
set pgp_good_sign="^\\[GNUPG:\\] GOODSIG"
#

# below settings from Jostein Berntsen <jber...@broadpark.no>
#
set pgp_autosign=no
set pgp_autoencrypt=no
set pgp_ignore_subkeys=yes
set pgp_entry_format="%4n %t%f %4l/0x%k %-4a %2c %u"
set pgp_long_ids=no
set pgp_replyencrypt=yes
set pgp_replysign=no
set pgp_replysignencrypted=no
set pgp_retainable_sigs=no
set pgp_show_unusable=yes
set pgp_strict_enc=yes
set pgp_timeout=300
set pgp_verify_sig=no
set pgp_sort_keys=address
set pgp_create_traditional=no
#

# below are settings I found on my own
set my_header="X-PGP-Key: http://www.fahque.net/0xD5B20C0C.asc";     # 
http://wiki.mutt.org/?MuttGuide/UseGPG
set pgp_use_gpg_agent = yes                                         # 
http://therning.org/magnus/archives/106
set crypt_verify_sig=yes                                            # 
http://wiki.mutt.org/?MuttGuide/UseGPG

# EOF

I tried to keep thinks as neat and organized as I could, the first 
block from /usr/share/doc/mutt-1.5.21-r1/samples/gpg.rc is completely
commented out except for the line to set my key. The rest of the blocks
I have created, I tried to ensure there were no duplicate or contrary 
settings.

As it stands, when I try to read encrypted mail with mutt I get the 
following message (after my password):

"Invoking PGP..." and then the message almost immediately switches to
"Could not copy message" and the encrypted messages remains unopened.

So that's where it stands right now, I've gotten further then before in
that I am no longer getting the "bad passphrase" error as I was before.

*EDIT* Check that, I tried to sign this mail and it failed, say hello to
my little friend "bad passphrase."

-- 
> A: Yes.
> >Q: Are you sure?
> >>A: Because it reverses the logical flow of conversation.
> >>>Q: Why is top posting frowned upon?
> http://xkcd.com/84/ | http://xkcd.com/149/
> GPG: D5B20C0C (6741 8EE4 6C7D 11FB 8DA8  9E4A EECD 9A84 D5B2 0C0C)
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