I thought I would post my answer here for others. I am a documenting freak and do this for everything.
Configuration on my laptop is:
Win XP - SP3
CodeLobster 3.1.3 with ALL plugins
XAMPP with NO plugins
Wordpress 2.7.1 Installed (c:\xampp\htdocs\wordpress\
Wordpress database = wordpress
Templating in Wordpress
1. Make sure you have the equivalent or above installed and working
2. List your files and create subdirectory structure for a new template - I am using DEV1 for the template I am creating now. Use a new one for each new template.
C:\XAMPP\htdocs\Wordpress\wp-content\themes\dev1
3. Create a new EMPTY PHP SITE Project in Code Lobster
4. On the creation screen use
http://localhost/wordpress (if you have the setup above) for the Debug URL - Enter a name (anything you wish) - enter the entire location where the theme is located... mine is C:\XAMPP\htdocs\Wordpress\wp-content\themes\dev1 - make sure you UNCHECK Create Project in New Folder. This will keep your project and files together for future developement.
5. Next create a SQL Connection for Wordpress - Connection Alias is anything you want. Since I develop for many packages, I have named them by package, i.e. Wordpress Connection. Your host/IP is "localhost" (if you are using the setup above). Port - I left as 3306 because this is what Wordpress is setup to use. Database is the name of the database created during Wordpress setup. Mine is "wordpress". The user name and password you may have changed. If you left it at the default during installation, the user name is root and the password is blank.
The User Name and Password defaults are OK for template creation ONLY. Do not upload this information to an external live server. You will leave your system and website open to security attacks.
Hope this helps...