Just started playing with visual micro. Must say, pretty impressed so far. Only issue I have is trying to get it to compli my arduino sketch with any other libraries other then the core. If I use the core libraries i.e SPI.h works fine. If I got to use any user defined library i.e OneWire.h, it fails. With the Arduino IDE works fine. Both cases using arudio 1.0.5 build. I'm sure it's some sort of setting I'm overlooking.

Answer to Question 1: yes

Output for Question 2:
Board Properties
name=Arduino Mega 2560 or Mega ADK
upload.protocol=wiring
upload.maximum_size=258048
upload.speed=115200
bootloader.low_fuses=0xFF
bootloader.high_fuses=0xD8
bootloader.extended_fuses=0xFD
bootloader.path=stk500v2
bootloader.file=stk500boot_v2_mega2560.hex
bootloader.unlock_bits=0x3F
bootloader.lock_bits=0x0F
build.mcu=atmega2560
build.f_cpu=16000000L
build.core=arduino
build.variant=mega
runtime.ide.path=C:\Program Files (x86)\arduino-1.0.5
build.system.path=C:\Program Files (x86)\arduino-1.0.5\hardware\arduino\system
runtime.ide.version=105
originalid=mega2560
vm.core.include=arduino.h
vm.boardsource.path=C:\Program Files (x86)\arduino-1.0.5\hardware\arduino
vm.platformname.name=avr
build.arch=AVR
ide.hint=Arduino 0023 and 1.0.x Ide
ide.location.key=Arduino
ide.location.ide.winreg=Arduino 1.0.x Application
ide.location.sketchbook.winreg=Arduino 1.0.x Sketchbook
ide.location.sketchbook.preferences=sketchbook.path
ide.location.sketchbook.default=%MYDOCUMENTS%\arduino
ide.location.preferences=%VM_APPDATA_ROAMING%\arduino\preferences.txt
ide.default.package=arduino
ide.default.platform=avr
ide.multiplatform=true
ide.includes=arduino.h
ide.platformswithoutpackage=true
ide.sketchfolder.platforms.exclude=avr
ide.includes.fallback=wprogram.h
ide.extension=ino
ide.extension.fallback=pde
ide.versionLTEQ=149
ide.exe=arduino.exe
ide.hosts=atmel
ide.url=http://arduino.cc/en/Main/Software
vm.debug=true
software=ARDUINO
ide.appid=arduino10x
location.sketchbook=c:\Users\DigitalMan\Documents\Arduino

Compiling 'zigbee_api' for 'Arduino Mega 2560 or Mega ADK'
Build folder: 560
SketchLibFolders
C:\Program Files (x86)\arduino-1.0.5\hardware\arduino\cores\arduino;C:\Program Files re\utility;c:\program files (x86)\arduino-1.0.5\hardware\tools\avr\avr\include\;c:\program files (x86)\arduino-1.0.5\hardware\tools\avr\avr\include\avr\;c:\program files (x86)\arduino-1.0.5\hardware\tools\avr\avr\;c:\program files (x86)\arduino-1.0.5\hardware\tools\avr\lib\gcc\avr\4.3.2\include\;
Summary: Header=1 Prototypes=4 Imports=1
Additional Defines: VISUALMICRO_COMPILER_VER=1;
Architecture Tools: C:\Program Files (x86)\arduino-1.0.5\hardware\tools\avr\bin\
GCC: 4.3.2
Sketchbook: file:///c:/Users/DigitalMan/Documents/Arduino
C:\Program Files (x86)\arduino-1.0.5\hardware\tools\avr\bin\avr-g++ -c -g -Os -fno-exceptions -ffunction-sections -fdata-sections -Wall -mmcu=atmega2560 -DF_CPU=16000000L -MMD -DUSB_VID=null -DUSB_PID=null -DARDUINO=105 -I"C:\Program Files (x86)\arduino-1.0.5\hardware\arduino\cores\arduino" -I"C:\Program Files (x86)\arduino-1.0.5\hardware\arduino\variants\mega" -I"c:\Users\DigitalMan\Documents\Arduino\libraries\OneWire" -o bee_api.cpp.o"  bee_api.cpp"  -DVISUALMICRO_COMPILER_VER=1
zigbee_api.ino : extra tokens at end of #include directive
zigbee_api.ino : non-local variable '<anonymous union> data' uses anonymous type
zigbee_api.ino : : In function 'void sendDatatoYodda()':
zigbee_api.ino : Warning: unused variable 'x'
C:\Program Files (x86)\arduino-1.0.5\hardware\tools\avr\bin\avr-g++ -c -g -Os -fno-exceptions -ffunction-sections -fdata-sections -Wall -mmcu=atmega2560 -DF_CPU=16000000L -MMD -DUSB_VID=null -DUSB_PID=null -DARDUINO=105 -I"C:\Program Files (x86)\arduino-1.0.5\hardware\arduino\cores\arduino" -I"C:\Program Files (x86)\arduino-1.0.5\hardware\arduino\variants\mega" -I"c:\Users\DigitalMan\Documents\Arduino\libraries\OneWire" -o Wire\._OneWire.cpp.o"  "c:\Users\DigitalMan\Documents\Arduino\librarie

Hi, thanks for the info. Please email the full output to the address below. Thanks very much

info [at] visualmicro.com

Yes, that did the trick. Everything is compiling fine now. How those hidden files got in there I have no idea (least for now).
Thank you.

The debugger has been pretty dam good - considering the Arduino has 0. Well worth the few dollars it cost. Great job

After using the interface add-on and the trail debugger for a good 1.5 days, I'm upgrading from dam good to excellent. Worth every cent. Compared to Arduino IDE, it's like comparing VI to MS Word.  I'm sold.