Hm... Is email being sent out at all by the contact form? With the rampant problem of spam (and botnets, and harvesters, and...) some hosting companies go to great lengths to ensure that the PHP mail() function is tightly regimented. Then, there's also the possibility that the WP system sends email but the local MTA (the outgoing mail server) of your webhost is not trusting the script. Have had a few of those cases, too.
Also, triple check (and this can be tedious if you have a complex install) that all other plugins with email functions are set up properly, e.g. none is set to change email settings (like setting sender to a certain value). It's really a pity that there's no good "email management engine plugin" to act as the equivalent of an air traffic controller out there. There are very good SMTP plugins, but they are sadly very sensitive to other plugins mucking about the settings.
Finally, again: some hosts (sites) are simply not trusted by the big email service handlers (e.g. Gmail) so the effect is the same of email not going out: it simply never arrives at the destination, or is categorically marked as spam and deleted on sight. So, make sure your host (account) has the email server configured very tightly, e.g. look into setting SPF headers at DNS level.
If everything else works, i.e. all other plugins properly generate email really going out, and it's really just Grunion misbehaving, I'll bow out and leave it to the true Grunion experts. I've tinkered with Grunion and found that it works quite well, but that's of zero consolation to you. Good luck.