Just a quick post for Google:

To get Sass working with Merb 1.0.1, I had to add this to init.rb:

require 'sass'

Merb has been changing rapidly up to 1.0: when I googled this, I saw other solutions where you added the 'haml' dependency or didn't have to do anything. Neither of those worked for me with Merb 1.0.1, though.