Resolution:
When you open designer.tra file, you will find the following property :
java.property.user.dir=%DESIGNER_HOME%

This is the directory from which BW engine will start.  You can specify a different directory:
Ex.
java.property.user.dir=c:/temp
In this case BW engine will start from the directory c:/temp

When starting BW engine from within designer it looks for a file called 'properties.cfg' file in the &ltjava.property.user.dir> directory. Note that this name is hardcoded to 'properties.cfg'.  Also the fiIename 'properties.cfg' is case sensitive; it needs to be all lower case. If you wish to use a non-default name for the properties.cfg file, you can do so by specifying the following in the designer.tra file :

java.property.testEngine.User.Args= -p &ltpropertyFileName>

If you wish to specify a different location for the property file, you can do so my changing the java property &ltjava.property.user.dir>.

Some Examples.....

Ex:
java.property.testEngine.User.Args= -p MyProperties.cfg
BW engine will look for "MyProperties.cfg" under the &ltjava.property.user.dir> directory

Ex:
java.property.testEngine.User.Args= -p C:/Tibco/Properties/MyProperties.cfg
This time BW engine will look for "MyProperties.cfg" under C:/Tibco/Properties

Ex:
java.property.testEngine.User.Args= -p MyProperties1.cfg  -p MyProperties2.cfg  -p MyProperties3.cfg
You can also specify multiple property files. If you have similar properties in all three files, then properties in " MyProperties3.cfg" will override
" MyProperties1.cfg" and " MyProperties2.cfg"