Hey - I have the same problem, and this fixed it!
Set mem inaccessible-by-default on (default was off).
I also set "Force thread list update on suspend." I don't think it matters.

For those of you new to the Multilink - there are some gotchas I received my first P&E Multilink today. First time I used it - hooking to a FRDM-K64F.
The drivers are there, but directories are honked up. C:\PEMicro\multilink_universal\Drivers_11_1_1\windriver (and osbdm) are both the same.
I ended up copying all the files up from the redist and then the installer would run. Also, I finally found the documentation (which does not discuss the above) in
C:\PEMicro\multilink_universal\PE4576 - Technical Summary for Multilink Universal and Multilink Universal FX.pdf
Also - J11 should not be cut I got a little chop happy. Also, I later changed the Debug Shift Frequency to 2000 (2MHz) and it works.
As other folks have mentioned, life is better if you cycle power to your target before debugging.
Also, I plug into the non-SDA USB connector to power the FRDM-K64F.
I also removed C55 (reset line cap) as others have suggested. I don't know if this is required or not.
EDIT : I was unable to get the debugger to work in JTAG mode, had to use SWD. Just looked at the schematic of the FRDM-K64F and it is just a SWD interface.
It's a bit frustrating, but it does work. I've only single stepped, not really fiddled with registers yet.
EDIT: Also, if any of this is wrong, please post. I was hacking at a solution quickly and haven't worked out why the SDA needs to be in the loop (J11). I'm betting that cutting that trace removes a pullup which is required. (Just a guess).
QUESTION(s):
J25 - what should it be set to? I have the reset jumper (J25) set to pins 2-3.