Various Emulators are available in the market. Please guide me for an appropriate Emulator for 8051 derivative.
With code banking you will need to verify which ICFEs can handle that, they will be very few (I am very familiar with 64k limit ICEs, but hate code banking). My best guess is that NOHAU and the CEIBO DS-51 will both fit the ticket.

We are using 512K of code memory and 128K of Data memory in our target system
Have you had a look at the Philips Mx and P89C669, they both address 8Mb without banking and Philips usually have low cost ICEs for their chips.

Erik