I’m developing on LPC2103 with IAR WE 4.42 and J-link 5.2 on my hardware and also on Olimex LP-2103.
The problem I encounter is that, often, timer0 interrupt, but it seems to be the same for the other interrupt source, doesn’t start to work when in Debug mode. I have to turn off and on my device, then try to go in debug mode more and more times before to see interrupt to work.
It might be the settings you have set for the Options->Debugger and Options->Debugger->JLink configurations.
IF you use the later IAR workbench (5.3 or 5.4 - even the free kickstart edition will work) you can have unlimited flash breakpoints with the J-Link or Segger box. I find that the reset/interrupt settings work best with the HW if the settings specify “NXP Hardware” in the debug section. I don’t know if these options are supported in the 4.x version of the tool, unfortunately.