"Supposedly the uVision2 debugger will work in this way with the Cygnal onboard jTag debug port ... Could you confirm that this does work as I think and gives full real time debug capability?"

I dunno about Cygnal, but it certainly works just fine with the Triscend JTAG on-chip debug.

Note that JTAG debugging never gives you quite the full features of a true ICE (eg, in this case, execution trace) but does overcome some of the problems of a true ICE (eg, connection to the target!)