1) time to execute is about 5MS Interrupt is set 50MS time frame.
2)Now the serial is set with highest priority it is used to talk to other devices via MODBUS protocol.
3) when I run my program on the Emulator it runs perfect .... Hardware watchdog will reset the board. Watchdog is set to 8 Seconds.
4) I thought that the problem was that the Interrupts fighting each other so I made it that if one interrupts is active the other would be disabled but no luck.
1) MEGA seconds ?
2) are you sure that the serial is at the highest priority and the timer is not, even if you are 'sure' do check.
3) it is an emulator, it emulates, it does not do the same as your chip.
4) an emulator does not necessarily emulate the WD correctly.

Erik

PS Timer2 simply increments 5 variables, could it be that the problem is something that happens when one of those variables reach a value that mekes you do something?