Suddenly I noticed that my beloved TextExpander just stops working/expanding for no apparent reason. Restarting the app didn't work, but what does work is restarting Firefox.
I guess there's some conflict between Firefox version 3.6.x and the TextExpander engine. So the quick fix seems to be to just restart Firefox when this happens.
Evidently, this isn't fixed in TE3 - so no need to upgrade with hope of this getting fixed (at least not of this writing).
UPDATE January 4, 2011:
It has been pointed out in the comments that closing Chrome can also fix the problem - thanks folks!