I installed WP LaTex (1.8) on a test blog running WP 3.5 and set it up to do local LaTex generation. I already had LaTex and dvipng installed because I use LaTex for items in a wiki on the system. Everything worked fine.
I then installed WP LaTex on another WP installation on the same system. This one was running 3.5.2, since upgraded to 3.6. In both cases, I can't recreate the local LaTex generation. I get "path not found" error for LaTex and dvipng.
These WP installations are running on the same virtual server, so I can't think of any reason why one installation can find LaTex and dvipng and another can't.