Aha! Finally resolved the issue. There were actually more then one issues. I had to reinstall Cyida as it was corrupt and a huge learning curve to pass as below.
1) There are multiple ways to develop theos tweaks. The best way is to do it on Mac. Theos installation is required in all cases. So please follow Mac instructions from http://iphonedevwiki.net/index.php/Theos/Getting_Started. But don't run nic.pl to create project.
2) Install iOSOpenDev so that you can develop tweak via xcode itself. iOSOpenDev needs Theos which we installed on step 1. iOSOpenDev will also require dpkg package to be installed via macports.
3) Once done, just create new project via xcode. Pressing the RUN button in xcode only compiles and does not deploy to device. Once all compiling and linking errors are resolved follow below steps to run on actual device.
4) Open Target->build settings->User-Defined->iOSOpenDevDevice - Change this variable value to the IP of your phone. (You have to have your phone and you Mac on same WIFI). Then just press Command + Shift + I. And it will directly run on your device.
Setting up theos/tweak is not as straight forward as I thought but it fun to explore and figure out.