This might be a REALLY stupid answer, but it’s the most obvious one… Are you testing locally only? If so, make sure that you throttle your bandwidth in some way (perhaps using ServiceMonitor) so that it simulates an upload with a bandwidth constraint. Otherwise the transfer will occur too fast for the upload_progress to actually do anything.
I’m using mongrel_upload_progress without difficulty behind Pen + Apache, so Apache isn’t an issue. And it works fine in dev mode with Mongrel only.
If this doesn’t help (and I’m pretty sure it won’t ;), post some code so we can be of more help…