Sorry Bob, I believe on the second read, my comment also seem to come the wrong way. When I said I have used Matlab/Simulink for over 6 years, I was citing my experience with those tools. I am a fairly new user of LabView/SIT. So, I understand what are the linked subsystem etc. As far as versions are concerned, Matlab version Release 13 SP1 (6.5.1) seemed to have worked fine. This corresponds to Simulink version 5.1. The SIT version 2.0 (or 2.0.2).
I would like to understand what is the cause of the problem. Also, I was able to find a work around, but that is not a workable solution in our case. The reason is most of our model have a lot of library links. The work around is to disable the library link within the simulink model and then establish the connections between the VI instruments and model blocks at all whichever level. Then restore the simulink model library links. It seems to work fine but is not a viable option.