In order to be able to trace using Eclipse (I'm using Europa Fall version), we need to put a memory setting in our configuration file or run this in command line prior to invoking the server startWeblogic.cmd (or startWeblogic.sh) script.
set MEM_ARGS=-Xdebug -Xnoagent -Xrunjdwp:transport=dt_socket,address=8453,server=y,suspend=n -Djava.compiler=NONE -Xms256m -Xmx512m
By enabling this setting we are able to trace (step in, step out, step over, put a break on the code, etc). This is not a special capability of WebLogic of course, instead it is the capability of JVM available through the JDWP specification.