Pagination Problem

Awhile back I added a special pagination code from here http://design.sparklette.net/teaches/how-to-add-wordpress-pagination-without-a-plugin/ to my site. It worked great but as I continued to build my site the pagination stopped working. I have deactivated all plugins and it still doesn’t work. All it does is go to page 2 but still shows page 1 content. Any ideas?

Here’s my main code:

<?php

/*
Template Name: Blog Homepage
*/

?>

<?php get_header(); ?>

	<div id="container"> <!-- BEGIN MAIN CONTENT CONTAINER -->
		<div id="sidebar">
		<?php get_search_form(); ?>
			</div><!-- END searchbar -->

	<div id="blogContent"> <!-- START BLOG CONTENT -->

<?php query_posts("posts_per_page=3"); ?>

	<?php if (have_posts()) : while (have_posts()) : the_post(); ?>

		<div <?php post_class() ?> id="post-<?php the_ID(); ?>">

			<h4><a href="<?php the_permalink() ?>"><?php the_title(); ?></a></h4>

			<?php include (TEMPLATEPATH . '/inc/meta.php' ); ?>

			<div class="entry">
				<?php
				global $more;
				$more = 0;
				?>

				<?php the_post_thumbnail( 'my_custom_thumbnail'); ?>

				<?php the_excerpt(); ?>

			</div>
<?php $odd_or_even = 'odd'; ?>
			<div class="DATE<?php echo $odd_or_even; ?>">
				<?php $odd_or_even = ('odd'==$odd_or_even) ? 'even' : 'odd'; ?>

				<p class="DATEtext"><?php echo date("M j $upperCase"); ?>
				        </p>
			</div>
		</div>

	<?php endwhile; ?>

	<?php include (TEMPLATEPATH . '/inc/nav.php' ); ?>

	<?php else : ?>

		<h2>Not Found</h2>

	<?php endif; ?>

			<?php if (function_exists("pagination")) {
		    pagination($additional_loop->max_num_pages);
		} ?>

		</div> <!-- END BLOG CONTENT -->

<?php get_sidebar(); ?>

<?php get_footer(); ?>

If it makes a difference I am using these plugins: NextGEN gallery, Advanced Catagory Excluder, Akismet, All in one SEO, Contact Form 7, MailChimp widget, Sharedaddy, and Tweetable