user3219: Is there any free/open or commercial/paid Arduino IDE Sketch Debugger (not Atmel chip factory standard tool set) with Breakpoint and Variable read/set capability? 
I read about VM on web. Is there any similar product? 

user7856: There is something quite close to what you are asking.
You need either the (more expensive) ICEMKII (iirc) or the (cheaper) AVRDragon.
Then it's possible to use it with gdb.
In practice the AVR supports only one breakpoint, so what happens is that the binary in flash will be dynamically patched.
This will slightly reduce the life of the AVR, but I think it's fairly acceptable. One can always use Arduino UNO with the original DIP package for AVR, mounted on a socket. Then it's sufficient to replace the burnt microcontroller and keep the rest (but it's hundreds of thousands of programming cycles before the AVR fails).

user13432: There is an on-target debugger in Cosa and a port of the library for Arduino/AVR. It allows conditional and unconditional break- and observation points, simple call back-trace, variable read, memory status check, memory dump, etc.

The debugger is implemented as a small command handler that is executed on the target (Arduino). A set of macros are used to mark break-points, variables to observe, etc. 
Please see the debugger demo sketch for more details.

3219: <p>Is there any free/open or commercial/paid Arduino IDE Sketch Debugger (not Atmel chip factory standard tool set) with Breakpoint and Variable read/set capability? </p>

<p>I read about VM on web. Is there any similar product? </p>
 7856: <p>There is something quite close to what you are asking.
You need either the (more expensive) ICEMKII (iirc) or the (cheaper) AVRDragon.
Then it's possible to <a href="http://awtfy.com/category/microcontrollers/" rel="nofollow">use</a> it with gdb.</p>

<p>In practice the AVR supports only one breakpoint, so what happens is that the binary in flash will be dynamically patched.
This will slightly reduce the life of the AVR, but I think it's fairly acceptable. One can always use Arduino UNO with the original DIP package for AVR, mounted on a socket. Then it's sufficient to replace the burnt microcontroller and keep the rest (but it's hundreds of thousands of programming cycles before the AVR fails).</p>
 13432: <p>There is an on-target <a href="https://github.com/mikaelpatel/Cosa/blob/master/libraries/Debug/Debug.hh" rel="nofollow noreferrer">debugger</a> in <a href="https://github.com/mikaelpatel/Cosa" rel="nofollow noreferrer">Cosa</a> and a port of the library for <a href="https://github.com/mikaelpatel/Arduino-Debug" rel="nofollow noreferrer">Arduino/AVR</a>. It allows conditional and unconditional break- and observation points, simple call back-trace, variable read, memory status check, memory dump, etc.</p>

<p><a href="https://i.stack.imgur.com/QsIMN.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/QsIMN.png" alt="Debug Demo Sketch"></a></p>

<p>The debugger is implemented as a small command handler that is executed on the target (Arduino). A set of macros are used to mark break-points, variables to observe, etc. </p>

<p>Please see the debugger <a href="https://github.com/mikaelpatel/Arduino-Debug/blob/master/examples/DebugDemo/DebugDemo.ino" rel="nofollow noreferrer">demo sketch</a> for more details.</p>
