On PHPBuilder.com there's a recent post looking at debugging Magento applications with some of the built-in tools the platform makes available.

Magento is the world's most popular open source e-commerce platform, relied upon by countless Fortune 500 and small business alike for selling goods and services of all types. [...] But with Magento's considerable power comes a great deal of complexity [but] it can be incredibly difficult to even identify the origin of an error let alone resolve it. You can however dramatically improve your productivity as a Magento developer by taking advantage of a few key debugging features.

They recommend using four tools built into the platform - the developer mode, logging, template path hints and viewing the raw SQL queries. They also recommend using a few other tools like FireBug and the features of Eclipse to help with code formatting and completion.