It's finally working.
I spent the last week trying to acquire an oscilloscope. I decided to rewire the circuit one last time before debugging things with an oscilloscope.

Finally, it worked when I connected the circuit in this manner:

GPS Module ==> MAX232 ==> MAX232 ==> the 8051 chip

I would like to thank everyone on the forum who helped me make this project.

Now, I decided to raise the bar a bit and to make a data logger out of my GPS-Microcontroller unit.
My Aim: Is to build a module which stores entire NMEA strings or selected parts of NMEA data ( hopefully as a text file), and which can be connected to the computer.
I'm a complete novice with interfacing external memory so this will be quite a challenge. Can someone advise me which memory chip or card I can use to accomplish the aforementioned purpose?
Thanks,
Regards,
Sonia Sanghvi.