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I've checked some code through the VSS interface, and created an Eclipse project based on that source location.
I installed the latest VSS Eclipse plugin, and things appear to be working. For example, I have checkout decorations on the file icons, and I can "Compare With->Latest from VSS Repository...".
When I synchronize, and go to the Team Synchronizing perspective, the Synchronize tree appears to be correctly showing the local/repository changes. Everything looks good so far. Then I double-click a Java source file I changed to view the diffs. In the left (local) compare pane, the entire local source file is selected, and the right (repository) pane is empty. The VSS path above the empty pane appears to be correct.
Any suggestions on what might be the cause?