As it turns out, his error is directly related to the 1.1 release. I can confirm this as well because after having updated from 1.0.1a to 1.1 I received an error when attempting to watch my SASS directory with Compass. My error was different, but I believe they're both related to the 1.1 release.
We collectively discovered two different errors:
1. DavidGillespie and NicoDemuz's error:
error myapp.scss (Line 24: Undefined mixin 'background-image'.)
Sass::SyntaxError on line ["24"] of u: Undefined mixin 'background-image'.
I found the referenced line 24 in /resources/themes/stylesheets/sencha-touch/default/_mixins.scss:
NoMethodError on line 9 of /Users/markwyner/Documents/Gigs/PriceBox/Site_Sencha/www/resources/sass/../themes/lib/theme_images.rb: undefined method `inline_image_string' for #<Sass::Script::Functions::EvaluationContext:0x1011f6bc8>
When I reverted to 1.0.1a and ran a watch I received no errors, so I can confirm my error is directly related to the new version. Line 9 of theme_images.rb in 1.1 reads:
Sencha upgraded Compass support to 0.11. There have been a few complaints (including from me) that it wasn't made explicit in the release notes about this breaking change. So you will need to upgrade Compass to the latest beta version. To do that (in Mac - but essentially the same in Windows) do this:
whenever i do a 'compass compile' i get
NoMethodError on line 9 of /home/tom/Downloads/sencha-touch-1.1.0/resources/scss/../themes/lib/theme_images.rb: undefined method `inline_image_string' for #<Sass::Script::Functions::EvaluationContext:0xb747a240>