Hi,
The li1040 error indicates that you have too much code to fit in the internal memory of the processor - by a significant margin, in fact, at 0xbd22 words (~48K).
Two things you could try are enabling the Linker Elimination option in the project options, and enabling the "Individually map functions and data items" - also in the Linker options. This should minimize the amount of space your code/data requires.
There are also options by optimizing for space, which may have some impact on the size of your code (but unlikely to make a significant dent on that 48K). If the li1040 error still occurs, we could take a look at your project (either here, or through private support if you prefer).
If you don't have SDRAM you cannot use instruction/data cache - these exist to cache code/data from SDRAM into internal memory to avoid delays inherent in external memory access. At best all you will end up doing in your system is wasting internal memory (which will be reserved for caching purposes) that could otherwise be used to hold code/data. At worst, you will see exceptions when the processor attempts to cache from non-existent SDRAM.
Regards,
Craig.