I have the following newenvironment command:
\newcounter{algoctr}[chapter] \setcounter{algoctr}{0}
\newenvironment{algo}[1] {
\refstepcounter{algoctr}\vspace{0.2cm}\noindent{\bf Algorithm
\arabic{chapter}.\arabic{algoctr}: #1}}{\par}
and I use it thusly
\begin{algo}{blabbing a blah}
 blah
 blah
\label{eq:blabbing}
\end{algo}
However, every time I reference the label (\ref{eq:blabbing}), I get a "1", instead of a "1.1".
Could someone kindly let me know what I'm doing wrong?
Thanks
You're almost there, you just need to redefine \thealgoctr as well, something like:
\renewcommand\thealgoctr{\arabic{chapter}.\arabic{algoctr}}
(Untested.)
And then use \thealgoctr in your environment rather than explicitly referring to the counters.
I don't know about your counter, but I can recommend another possibility in which this works:
\usepackage{amsthm}
\newtheoremstyle{algostyle}
  {0.2cm}{0cm}%                                 margin top and bottom
  {\rmfamily}%                                  text layout
  {0cm}%                                        indention of header
  {\bfseries}{ }%                               header font and text after
  {0cm}%                                        space after header
  {\thmname{#1}\thmnumber{ #2}:\thmnote{ #3}}%  header
\theoremstyle{algostyle}
\newtheorem{algo}{Algorithm}[chapter]
\begin{algo}[blabbing a blah]%  brackets instead of curly braces for note
 blah
 blah
\label{eq:blabbing}
\end{algo}
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