There have been some developers with similar problems. All of them have been resolved so far and could be traced back to electric problems as
bad power supply
Miniprog3 settings:XRES acquire, external power
I would try not to power the board externally but by MiniProg3, same settings or power down acquire.
I went over the circuit several times, over the documentation and could not find anything out of place. Finally it came down to the "idiot" factor. I selected CY8C5888 device but the device I am using is actually the CY8C5688.
I can now connect and run programs on my own target fine.
thank you to have us informed! Ugly mistake and difficult to discover!
It was baffling. As I am fairly new to Cypress devices, I don't know the chip part by heart. I purchased some around a month ago and for some reason wrote 888 instead of 688 in the part number on my design folder.
Then I had no idea this was the trouble as I had checked the part number was correct (lining up what I selected in Software to what I had previously written down. If the error had shown "Invalid Device Type" or something similar, I would have clicked immediately. I eventually found it because I was confident the connections were correct and followed all the user guides for setiing info and so finally put the chip under the magnifier to determine the part number was correct. It even looked like 3 8's until I cleaned it up a bit and squinted to see a 688 :)
Hope this helps some other newbie if they have similar problem. Check the phyiscal device number with selected part in software.