I am doing ARM assembly programming using Metrowerks Codewarrior 1.2. But the IDE stopped working all of a sudden and showing an error when trying to run or debug the application. I searched for any new version of the software that had fixed it but cannot find any. How can I fix this error?
I cannot even open the AXD Debugger separately and load the compiled image of the project as the load image link is disabled in the AXD Debugger.

According to this http://www.retinapost.com/error-87-the-parameter-is-incorrect-xp.php something is corrupted in your Windows installation (not sure if this is really the problem, but you can give it a try). According to this article, there is a program to fix that, but I'll first of all try to restore the OS to a previous known good state.
DISCLAIMER: If you really want to use it, scan it with your antivirus software, and also run it through virustotal.com. I'm not responsible if this tool is really malware.