From your description, with the target set to INTERNAL_FLASH, do you click on the debug icon in the CW project window and expect the program to be loaded into Flash? The CW ColdFire tools do not work that way. Instead, you have to go to the Flash Programmer, and select the Program/Verify panel. Check the option, Use Selected File, and then navigate to your image file. Then click Program. If it programs successfully, then you can run the debugger.
---Tom