If you have the source code, can't you just compile xwlan with source debugging info (ICAT knows CODEVIEW and HLL where unfortunately it no longer understands the CODEVIEW variant that Watcom produces) and then set breakpoints from ICAT ?
If you set a breakpoint via ICAT, that's exactly what it will do: replace the first byte of an instruction with the 0xCC (int3) instruction.
At least that's what I have done over and over again with the USB driver source code.
Of course, the source code will have to be on your ICAT machine (along with the binary with debug info). The binary with debug info will (also, of course) have to go to the MUT.