UART stops working when interrupts are enabled

Update:

I did some more debugging and it turns out that as soon as the UART RX interrupt is enabled and its ISR function is registered, the ISR gets called over and over again, even though that there is nothing being received.

What's strange here is that the code I'm using (see post above) is what I've been successfully using for a while and it is what I find online as well. The only change is that I'm now using a DE0 Nano board instead of a Cyclone III DSP development kit, but that should not matter as NIOS II is still the same. On the other hand, I'm using Quartus II 12.1 instead of the 11.1 version earlier.

Some additional info:

I am toggling an LED every time the ISR executes and it looks like a 1s on and 1s off blink when I run the code. When I send characters to the UART (which should trigger the ISR), I do see some extra blinks, meaning that the ISR is getting called upon UART receive.

So the question remains: What causes the UART ISR to be triggered and why does that bring the UART transmit functionality to an immediate halt???

Any comments or insight is highly appreciated!!!