An emulator is essentially a hardware device: when you set a breakpoint, it is a specific hardware address; when you single-step (at the assembler level), you execute a single hardware instruction.

If your emulator cannot do this, then it is broken.

All of this is independent of what tools you use to write your source code.

Remember: the 8051 itself neither knows nor cares what tools you use to write your source code - it just fetches & executes the binary image from its CODE space.
An emulator is the same!

The only point at which the build tools have an influence is when you what to use the symbolic names from your source code, or what to step at the source level.

But, even then, the actual tools are not relevant - all that matters is that they provide the necessary Debug Information in a format that the emulator software understands.
(note that it's not actually used by the emulator itself; it's just used by the software to translate from the source-level information to hardware addresses).

What you need to do is to find out what Debug Information formats your emulator supports - you can then determine whether SDCC (or any other compiler) can provide that information.