SQL Server Management Studio is not equipped with the ability to debug the code. However, VS 2005 IDE does.
1.
open visual studio .NET
go to server explorer
create a connection to your database
right click on the stored procedure you want to debug and select "Step into stored procedure"
2.Debugging a Remote Database Instance
The main challenge of debugging a remote database instance lies in ensuring that the Windows account used to launch Visual Studio is the same user account that is used to connect to the database on the remote instance. Moreover, this user account must be a member of the sysadmin role.
For example, you might create an account in the Windows domain named TestDebug. You would then add this user account as a login on the SQL Server and add the account to the sysadmin role. To debug the database objects, you would need to either logon as TestDebug from your workstation, or make sure to launch Visual Studio using the runas.exe command to run it under the context of TestDebug. In either case, once you have Visual Studio up and running under the TestDebug user account, you can start debugging using the techniques we will be discussing in this article.
Pre-requisites
1. Find the .exe file under the directory, C:\Program Files\Microsoft SQL Server\90\Shared\1033\rdbgsetup.exe or similar path where the SQL Server was installed. The file rdbgsetup.exe stands for 'RemoteDeBuGsetup'. Look for the emphasis on letters. The filename reads rdbgsetup because, we are going to debug a stored procedures of a database available in some remote physical server. Either we need to sit at the server and debug them or we should be in a position to debug the stored procedure remotely. This action should be performed on the physical server where SQL Server 2005 was installed.
2. The user who debugs the stored procedure should be a member of SQL Server's fixed Server role, SysAdmin.
As a DBA, I may need to grant this privilege to the user who is in need of debugging a stored procedure. When I do that, I should trust the user so that he/she will not mess-up anything on the Server. Ok, I believe my users are trust worthy and I issue the following T-SQL command to assigning a fixer server role, SysAdmin.
The command to do so is as follows
EXEC master..sp_addsrvrolemember @loginame = N'<YourLoginName either SQL Server Authentication or Windows Authentication>', @rolename = N'sysadmin'
This can however be accomplished with SQL Server Management Studio's IDE. Perhaps, I prefer using T-SQL commands.
Note: The parameters to the stored procedure, sp_addsrvrolemember are of type, Nvarchar and it stands for (National Variable Character), which usually holds Unicode characters.
Now, we are all set for debugging stored procedures.
Process to Debug a stored procedure
1. Open the Microsoft Visual Studio 2005 IDE.
2. Select Server Explorer option from the View Menu as follows: 
3. From the Data Connections node, right click and select, 'Add connection'. Fill in the details to connect to the intended SQL Server and the database using the login who has a fixed server role, SysAdmin. Click on Test connection. Once the connection succeeds, the overall screen should look like the following. 
4. Expand the data connection just added, and navigate to the Stored Procedures node.
5. Expand the Stored Procedures node and select the intended SP to be debugged.
6. Right click and select open to view the source code of the selected stored procedure.
7. Place a break point on the intended line of code where debugging needs to be started its usually the way .NET Developers perform.
8. After performing the above steps the screen shot should look like the following.
9. After performing the above steps the screen shot should like the following: 
10. Right click on the stored procedure from the 'Server Explorer' and select 'Step-Into Stored Procedure' as shown below. 
11. This action brings up the following screen shot. 
12. Enter the needful values and click Ok. The next shot will be the following. 
13. From here on, its usual .NET debugging stuff. Use Step-Into and Step-Over and Step-out from the shortcuts menu or pressing F11,F10, Shift+F11
Wasn't that very simple. It made the life of DB developers much more comfortable. Had it not been available with SQL Server 2005 and VS 2005 IDE it would have been a nightmare to debug stored procedures remotely/locally.
Happy Development and concentrated debugging.