1. I just got my webstation how do I develop my application with it.

Please go to http://developer.android.com/guide/developing/device.html, here provide all kind of information related for developers.

2. Device kept going to sleep while I am using it as a development machine.How to wake up a sleeping device into a fully powered on?

Turn on "Stay awake" in Settings / Applications / Development / Stay awake

3. What kind of Android API Level is right for Webstation?

WebStation runs Android 1.5. We suggest you to select or change your "build target" to Android 1.5(API Level 3)

4. What layout profile should I use for Webstation? Is there any emulator I can use?

WebStation has WVGA ( 800*480 ) resolution, you may align your application layout to WVGA resolution. You can also go to our Camangi WebStation Forum, and there is a topic which has a explanation for how to create an emulator for WVGA-L screen. (http://www.camangi.com/forum/viewtopic.php?f=13&t=46)