Ok,
On Project > Project Properties, select the Build tab. Which radio button have you selected for "Build System"
Build with a user maintained makefile is selected
Was this setup as a C++ project initially?
To avoid any queries on this one I am recreating the projects and writing what I am doing as I do it. Hopefully I will never post this bit as it will all work

1.- Close the workspace, out to a command line, off to my project directory, and finally "move *.v* ..\backup\."
2.- File->New->Workspace->Blank workspace in the project directory
3.- File->New->Project->(Generic) startup project.
3.1.- Files tab: Add C source files
3.2.- Build tab: Build with user maintained makefile or custom build command
3.3.- Tools tab: Command line: c:\ghs\mips424\gbuild src\startupcode.gpj
4.- File->New->Project->(Generic) product project
4.1.- Files tab: Add C source files
4.2.- Build tab: Build with user maintained makefile or custom build command, select beep on completion
4.3.- Tools tab: Command line: c:\ghs\mips424\gbuild src\product.gpj
4.4.- Dependencies tab: Depends on startup
Build now works OK. Removed the compile tool and it still works. Postbuild steps work as well.
Thanks for your help.