I had your same problem and I solved this way:

1) run scratchbox
2) run sb-menu
3) hit "setup a target"
4) hit "FREMANTLE_ARMEL" (if this is the system you want to cross-compile for)
5) select compiler "cs2007q3-glibc2.5-arm7 (cross)" (this is the one avaible in my installation)
6) now when it asks for a devkit, select "cputransp"
7) select "done"
8) select CPU-transparency method, I selected "qemu-arm-0.8.2-sb2"
9) do you wish to extract bla bla? "No" (I really don't know what that could mean, sorry)
10) do you wish to install files to the target? Well, I selected "Yes", but I changed nothing...
11) go back to main menu and exit

now you can try to cross-compile and run a simple helloworld on your target machine (the binary produced by gcc are native for ARM processor, qemu transparently runs that code inside your scratchbox).

It worked on my installation.

Hope this helps,

L-