Unless you mean something other than what I think of when you say 'startup code'.

I have a main.c file that runs first, along with a bunch of other .c and .h files. Inside main.c there is a main() that looks like this:

void main(void)
{
Initialize();
...
}

void Initialize(void)
{
Initialize8051();
...
}

void Initialize8051(void)
{
PCA0MD &= ~0x40; // disable WDT
...
}

So it appears to me as though the WDT is being disabled right away. I tried moving the disable to the first line of main(), but the results were the same.

Unless there's something that I'm missing (and that's likely) I don't see where it's a WDT problem...