Since you are using the "debug in internal RAM", your project should have debug information.
Glad to hear you got the LEDs blinking.
When you use the wizard to build a MQX project, things get set up properly so that the blanks in the path name should not be an issue. However, I am of the old school myself and avoid blanks in the path names where I can.
You can build and execute MQX applications generated by the New MQX Project wizard without building MQX, but there is a gotcha here. The MQX components have been built assuming a Windows 7 installation. (In Windows 7, you normally do not have access to the Program Files folder, so the MQX folder is installed outside of it. For Windows XP, the MQX folder lands in the Program Files folder.) Now, this is not usually a problem, unless you want to debug and watch how MQX deals with things. So, for your Windows XP situation, you have to rebuild MQX.
OK, so how do you do that? Here's what I did. It involved uninstalling and reinstalling software, which you might not want to do. I managed to mess up my MQX installation, so I had the opportunity to figure this out. The process is:
1) Uninstall CW for MCUs and MQX
2) Install CW for MCUs v10.2
3) Install the CW for MCUs v10.2 update
4) Install MQX 3.8.1
The installation order here is important--if you do it wrong both CW and MQX break in mysterious and frustrating ways.
Trust me on this one.
5) Drag the file <board>.wsd into the CodeWarrior Projects view, where <board> is your board name. For Windows XP, the path name is C:\Program Files\Freescale\Freescale MQX 3.8\config\<board>\CW10\<board.wsd.
6) You should get a bunch of projects appear in the CodeWarrior Projects view. These projects handle building the MQX kernel, board support libraries, and other MQX software stacks. Some choices should appear in the active working set box in the IDE's tool bar. Now when you click on the build icon adjacent to this box, CW builds all of the MQX projects. If you make a change to the user_config.h file to activate certain services in MQX, all you have to do now is hit the build icon for the working set again.
Further details on building MQX can be found in the the document, FSL_MQX_in_CW_10_x.pdf, which is located in the folder C:\Program Files\Freescale\MQX 3.8\doc\tools\cw. Make sure that it is dated June 2012 or later.
Hope this helps.
---Tom