The simulator in MPLAB can't simulate hardware peripherals like the USART, Timers, CCP modules etc. It gets stuck waiting for something to happen that never does.

It's better to use MicroCode Studio in debug mode. Of course, it's not free.

Also, on the 16F688 the TX is on RC4. In your program, RC4 is set to Input by the TRISC = %00111111 statement. It needs to be an output for HSEROUT to work.

HTH,
   Darrel