LIve Mesh is not supported on Windows Server of any flavor, though it will work. Since you are able to kick start it into uploading the changed database file(s) with a workaround, I'd not consider a reinstall of Live Mesh, which would be the typical thing to try when files are no longer synchronizing with a folder or machine.
However, you may want to submit logs with a bug report in case there is a bug causing your issue.
How to Submit Bugs and Live Mesh Logs
Note that you probably won't get a response to the bug report, though. It will be transferred to the internal system to be assigned to the appropriate development group.
-steve
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