No worries about the delay.
I am not sure what is going on with IAR. When I set the debugger up to not run to main, and step through the system_MKE18F16.c code, the values in the register file are not correct according to the reference manual.
These are the values I see before running any code in the system_MKE18F16.c file. It seems as if the values that are inside the #if (DISABLE_WDOG) are somehow showing up in the register fields.

In the code that I am executing, I set the DISABLE_WDOG to 0, and give it my own configuration of this:

Not sure why I can't see the startup values that in the reference manual.
I did have a question about when the watchdog actually starts counting. I was thinking about the WDOG->CS[TST] bits and was thinking that if you do a low byte test, and the WDOG starts counting once it is out of reset (the LPO clock is received), wouldn't the low byte test be initiated before you can configure the TOVAL register, and you would do a low byte test with a value of 0 putting you into an infinite reset? That makes me think that the WDOG starts counting at some time after reset. Does the watchdog start counting once you have a successful configuration (WDOG->CS[RCS] == 1), after the first 128 bus clocks, or just once the LPO clock signal is received (i.e. directly out of reset)?
Does the WDOG->CNT register also set back to 0 on a successful configuration (WDOG->CS[RCS] == 1)?