Please ensure that the following measures are taken while communicating using RS232:
1) When Hyperterminal is used, the correct Com Port is chosen.
2) Jumper J10 on the Developement Kit is closed in order to power the RS232.
3) Since you are able to observe the pulse on interrupt, the interrupts should be enabled using 'CYGlobalIntEnable'.
4) In the configuration box of UART Component, the Interrupt 'RX- On Byte Received' should be checked.
5) In the ISR, the UART status register must be read to clear the interrupt so that the next received bytes can also trigger the interrupt.
Let us know if this helps.
Calling "CYGlobalIntEnable" did it for me. Didn't see that in the docs anywhere.
Here is an example of my init function: