In this paper we describe the methodology and architecture of a flexible modular environment for prototyping data transmission systems and its application on xDSL systems. The development environment is based on custom and commercially available software tools and a custom hardware emulation platform for mapping the basic data-pump modules of xDSL systems into hardware/software functional modules. The road-map from a high-level xDSL system model to the actual prototype is based on the progressive substitution of high-level submodules of the initial model with their respective hardware/software counterparts, and their integration into a complete functional system. A library of custom blocks is used for data exchange and synchronization between the high-level model and the emulation platform, and for real-time visualization of the critical parameters of the emulated system as well. The application of the proposed development environment in the implementation and testing of an emulator of a bundle of DSL lines and of a centralized bit-loading algorithm for multicarrier ADSL systems is also described.