Lets start with the configs.
In the PBP directory there is a *.inc file for every chip, this is where the chip is configured. It can also be done in code space.
http://www.picbasic.co.uk/forum/showthread.php?t=543
For now look at the *.inc file
Code:
;****************************************************************

;*  12F675.INC                                                  *
;*                                                              *

;*  By        : Leonard Zerman, Jeff Schmoyer                   *

;*  Notice    : Copyright (c) 2005 microEngineering Labs, Inc.  *

;*              All Rights Reserved                             *

;*  Date      : 08/31/05                                        *

;*  Version   : 2.46a                                           *

;*  Notes     :                                                 *

;****************************************************************

        NOLIST

    ifdef PM_USED

        LIST

        include 'M12F675.INC'	; PM header

        device  pic12F675, intrc_osc_noclkout, wdt_on, mclr_on, protect_off

        XALL

        NOLIST

    else

        LIST

        LIST p = 12F675, r = dec, w = -302

        INCLUDE "P12F675.INC"	; MPASM  Header

        __config _INTRC_OSC_NOCLKOUT & _WDT_ON & _MCLRE_ON & _CP_OFF

        NOLIST

    endif

        LIST
The above shows internal OSC, watch dog timer is on, MCLRE is on and code protect is off.
For now change MCLRE_ON to MCLRE_OFF. do the lower case one if you are using PM for the assembler and the upper case one if you are using MPASM for the assembler.

The chip you are using has built in ADCs, something new from the Basic Stamp. If the pin is to be used as a digital then the ADC needs to be turned off.
This thread is labeled PORTA... but the same applies for GPIO.
http://www.picbasic.co.uk/forum/showthread.php?t=561

In my opinion is will be a bad habit to stick with the Basic Stamp idea of a pin being 0 or 1 or 2. Better to get in the habit of calling the pins by the name or assigning on to it.
Code:
LED VAR GPIO.1
PBP defaults to 4MHz but it is good practice to define the speed in code space.
So make the change to the *.inc file and give this a try.
Code:
'16F675
DEFINE OSC 4
ANSEL=%00000000
CMCON=7
LOOP:
HIGH GPIO.0
PAUSE  250
LOW GPIO.0
PAUSE 250
GOTO LOOP
END