Something recently changed in the JIRA On-Demand ecosystem and now Atlassian Labs Autowatch Rules is broken. We've contacted support and they've tried disabling and re-enabling the plugin as well as clearing the cache but it's just no longer working. This is terrible news and we heavily utilize this awesome feature. Atlassian support can't do anything further - who is the person that can help us here?
p.s. as an aside, when you sign up for JIRA OnDemand, you get a bunch of add-ons preinstalled, maybe you shouldn't preinstall the labs items if you aren't going to support them.