Solved! Go to Solution.
Thanks rlwatson!
I couldn't make it to work with 3.5sp1 framework.
I uncommented/commented the below lines in ArcMap.exe.config
<supportedRuntime version="v4.0.30319"/>
<!--<supportedRuntime version="v2.0.50727"/>-->
And changed the framework back to .NET 4 in VS2010 and the debugger seems to be working now!
Thanks again:)