The good news is that there is nothing inherently different about Xcode vs converted ProjectBuilder projects. But my program does not like very simple projects, where the project and files are all in the same directory. If instead, you make a very simple hello world type project but put the c code in a SRC directory below where the project is created. (And use that main.c not the one Xcode creates for you with project relative addressing). Then it will create the makefile and it's Ok.
What I will do is change PBTOMAKE to handle this very simple case. It turns out that XCode doesn't put in a path key/value pair if the source/include file is in the same directory as the project. (I think it would have had the same problem with a ProjectBuilder file also).