Further updates:
MQX v4.0 does not have this issue - so using MQX v4.0 with IAR v6.50 works fine and the libraries build as delivered.
The response from IAR about the issue (with MQX v3.8.1) is:
This turns out to be a (recently) known issue. It comes from MQX placing labels in the far left column of the source file. For the moment the only workarounds we can offer are to stick with version 6.40 or to edit the MQX source files to add a space before the labels
I was able to edit files in MQX (v3.8.1) to resolve this issue and get it to work with IAR v6.50. These are the files that must be changed:
\mqx\source\io\debug\iodebug_asm.s
\mqx\source\psp\cortex\cortex_boot.s
\mqx\source\psp\cortex\dispatch.s
I added a single space to the beginning of the lines in these 3 files that begin with: ASM_PUBLIC_BEGIN, ASM_PUBLIC_FUNC, or ASM_PUBLIC_END
Changing this corrects the issue and the libraries build with no errors.