Hi,
I would like to share my experiences with the IDE toolchain described by Paul (thanks !!).
My hardware is 5485Evb board and parallel version of P&E device.
I had only minor problems setting CodeSourcery + Eclipse.
Project Yagarto (http://www.yagarto.de/) has very useful information about similar project regarding ARM CPU.
I created and compiled simple hello.c using standard m5485evb-rom-hosted.ld
Unfortunately running debug sesson was a nightmare. First problem was installing P&E drivers. I was never able to get anything more then "error:Could not load P&E DLL" message. Fortunately CodeSourcery 4.1.30 just arrived, with a new stub (now the name is m68k-elf-sprite.exe) and P&E drivers included. That installed flawlessly.
Even then starting gdb session was not succesful. A number of 'Communication error: No error' messages was displayed (in verbose mode) on the console, which was not very useful

I am new to the gdb, so that was rather frustrating. I spent a lot of time discovering the source of the problem.
Finally I tracked the problem to the uninitialized %sp register. The .xml files supposed to initialize the CPU do not set %sp. The first command Eclipse sends to GDB after 'load' is -stack-list-frames. GDB tries to access (%sp), which is usually out of physical memory, which in turn hangs CPU and BDM communication.
%sp is initialized as first command of crt0, but it is too late...
As a quick fix I expanded my initialize commands:
target remote | m68k-elf-sprite pe://ParallelPortCable:1 m5485evb
load
set $sp=0x4000000
I am still not sure how this should be done properly, but at least I have working debugger

Any comments are welcome,
Piotr