but if you are trying to use the new microcontrollers with ISP such as the P89C51RD2 from Philips, then the external Watch Dog Timer becomes a problem
It does not become a problem, it becomes unnecessary.
The P89C51Rx2 has an excellent internal watchdog (the REAL one, the the PCA4 Intel kluge) and all there is needed is a 3 pin power on/off/brown supervisor.

Re Reset on the P89C51Rx2: When the puppy bites, the reset pin becomes an output, be sure to insert a resistor (I use 2k2) between the supervisor and the uC.

Erik