The project wizard of the S12 (and as far as I know also the S08's) do not support to generate a project which downloads the code to run in RAM.
Techincally debugging in RAM is possible, but due to limited amount of RAM available only rather small pieces of applications could be downloaded at once. Therefore the tipical debug cycle flashes the application and then the debugging takes place in flash.
When using the HIWAVE debugger, do not set breakpoints in the CodeWarrior IDE. Instead set them in the HIWAVE debugger directly.
Daniel