First and foremost I would encourage you to upgrade to Eclipse 3.0 GA + MyEclipse 3.8.1 + MyEclipse Hotfixes, this is going to be the most stable/robust setup for you. The M-build of Eclipse you are using was very buggy and besides a few ‘strange’ issues you might run into, you never know if things you are troubleshooting are bugs, or actual errors in the software.
Also, make sure you are using the IBM JDK that ships with WebSpehere to run it, you may also want to try and run Eclipse with the same JDK (eclipse.exe -vm c:\path\to\java.exe). The WebSpehere JDK is heavily modified and you likely aren’t going to have success running Websphere correctly without it. Also successful debugging seems to rely a lot on mostly compatible versions of JDK running the debugger (Eclipse) and running the server (Webspehere) which is why I suggest trying to use IBM’s JDK to run both, although it does sometimes work when they are different 1.4 VMs.