I don't know if it happened on machines such as the c64 but I do know that at some point amiga games were developed using cross assemblers and debuggers running on intel PCs.
I reckon the first few years of the C64's life games were written on the C64 itself, but then written on a more powerful machine in its later years such as the Commodore Amiga. Just a guess though...
I know that reflections did this at least on shadow of the beast II and later games (they used to have interesting blurbs in the documentation of their games telling about the developpment process and it was mentioned there iirc).
Factor 5 had even developped their own intel pc based toolset called "pegasus" that they used for all their amiga and console games (probably even for their atari ports too)., I had read this in an interview somewhere.
Nowadays it doesn't makes a lot of sense to use another pc to develop a pc game, but in those days it probably made a lot of sense for professional developers to turn to that kind of solutions because machines had small amounts of memory which made it hard to have a game and development tools to coexist and even though some OSes like amiga's had preemptive multitasking they didn't provide any kind of memory protection and process isolation, which meant any unfortunate write through a bad pointer could bring the entire system down (or worse, result in filesystem or text editor buffer corruption, all kind of fun things).
Also since most games just clobbered the entire hardware and memory and interruption handlers (because using the os induced too much overhead and the hardware was fixed anyway) it was likely much easier to use remote debuggers running on the intel pc than having some hacks to let the game coexist peacefully with the os during development.
As an example of the kind of things that could happen in those days when developing directly on actual target machine , the first game that Reflections developped on amiga was ballistix. I can't remember how the hell I managed to come accross that in the first place but there were actual portions of the game's assembler source code that ended up lying around on some unused sectors of the floppy disk. Evidently that game wasn't yet using a development process using a separate pc...