I have no idea. But, if you add a third parameter to the wpsass_define_stylesheet() call in functions.php: wpsass_define_stylesheet("style.scss", "style.css", true); Then any errors encountered will be printed as html comments on your site. That should provide some insight, but they will appear at the top of the page before the opening tag, so only use this feature to determine why style.css fails to update and then turn it back off again.
To avoid requiring Compass or another haml/sass conversion program to be installed on your server, this plugin uses PHamlP. Unfortunately, there are some issues in this php port (See: http://code.google.com/p/phamlp/issues/list) and it has not been updated in a while. Overall, it seems to work pretty well but just be aware that there might be some issues like the one I found: "margin:0;" gets omitted. "margin:0px;" works fine. "margin:0 0;" also works fine. "margin:none;" also works fine.