I have been having problems with sitemap-generator version 3.2.3 on WordPress 2.9 and above. Basically I was suspicious it wasnt working.
So I logged onto Google Webmaster Tools and manually forced a resubmit and it kept claiming there was an error with sitemap.xml, saying it was a html file.
I did a bit of fiddling, and found others also experiencing similar issues on the pluggin’s forum, but no real solution.
I didnt like the xsl formatting. So as a test I renamed the /wp-content/plugins/google-sitemap-generator/sitemap.xsl to sitemap.xsl.orig and re-ran the sitepap-generator manually.
Now if I opened http://www.arboundy.com/sitemap.xml it didnt look pretty but it did look like xml. So I went back to Webmaster Tools and resubmitted. What do you know? Google liked it and it was now indexing all my pages.
So it appears somewhere along the line between the three systems (WordPress, sitemap-generator, Google) the xsl file is causing a problem.
Hope this helps others out with the same problem.