[MattD]

If memory serves me correctly, this is what I did:

1. Create a new Project using File->New->VxWorks Downloadable Kernel Module.
2. Enter a name for the project and select Create project in workspace (default). Click Next a couple times, using defaults, until reaching Build Specs.
3. Enable PPC603gnu, uncheck the other options. Click Finish.
4. In the Project Explorer, right-click on the new project and select Properties.
5. Select Build Properties, then the Build Paths tab. Click Add and and enter a new include path: $(WIND_BASE)/target/h/WPIlib
6. Select the Libraries tab. Click Add and enter $(WIND_BASE)/target/lib/WPILib.a.
7. Add your own files to the project, and edit as normal.

The .out file should be located at $(WIND_BASE)\workspace\<ProjectName>\PPC603gnu\<Pr ojectName>\Debug\<ProjectName>.out. The downloader should be configured to use this file. That can be done in Window->Preferences->FIRST Downloader.

Also, note that you need to include WPILib.h, not WPI.h. I'm not sure if this was just a mistake in your post or not.