"HW_MUL_SUPPORT" in Nios2-Linux with MMU supported distribution

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Enabling this support in make menuconfig enables "-mno-hw-mul" flag at compile time. Does it create different multiplication instruction at compile time for multiplication operation?

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Yes. I think there is a separate setting for kernel and apps though. If you are compiling your app separately from uClinux-dist, you'll need to set the flag yourself.

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I want to trace the assembly instructions that are used for both enabled/disabled support. Can anyone help me?

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Look at the disassembly using nios2-linux-gnu-objdump (man objdump).