The Timer1 registers are all handled by Elapsed_INT-18.bas, so you shouldn't be changing T1CON. One problem there is that you turned on the RD16 bit in T1CON, but Elapsed_INT-18 doesn't use the timer that way, so it would have been re-loading the wrong values, probably with much longer periods.

For the DEBUG issue ...
Any statements that are timed by software ... Pulsin/out, Serin/out, pause, Debug and others will be disturbed by interrupts. That's just the nature of interrupts.

You should use Hardware whenever possible.
For serial data, use the USART.

And for the FOUND LABEL AFTER COLUMN 1. (INT_LIST) warning.
You can either remove the extra indentation before the INT_LIST macro so that the line starts in column 1.
Or, add this line to the program
Code:
@ errorlevel -207
Which stops MPASM from giving the warning.

hth,