Well not sure why the project settings/file sync does not work. It copies the files to the /tmp/VisualGDB/c/projects/<project> directory. However it does not copy the xml file to the debug directory.
In the pre debug step I set it to copy to /tmp/VisualGDB/c/projects/<project>/VisualGDB/Debug/config.xml (ie, explicitly set the file name) and it works.