Debuggers normally expect target being configured for normal single chip mode. MODC(BGND) pulled high, MODA and MODB pulled low. MODC:MODB:MODA=100.
To get into active background mode (special single chip mode), debugger pulls MODC low and pulses reset low. Target gets reset into special single chip mode, 000.
Now, if your target is set for normal expanded, 101, then hitting connect in debugger will also make MODC pulled low and target will be reset. Thats mode 001, Emulation Single Chip. I guess it's not what you want.
I think you need to jumper your target for normal single chip and enable expanded memory at runtime. You may also try using hot-plugging mode, check hiwave->P&E multilink settings.