You should use Firebug (addon of Firefox) to look at the AJAX requests that are done. Like that you can see the exact error message.
I know that usually you have to pass an username with "-1;#" in front of it to make Sharepoint to recognize it as an username (for example: "-1;#john_doe@test.com")... maybe it's the reason?!
Instead of SPServices you could use SharepointPlus and its groupMembers function:
$SP().groupMembers("my group", function(members) {
for (var i=0; i < members.length; i++) console.log(members[i]);
// -> {ID:"1234", Name:"Doe, John", LoginName:"mydomain\john_doe", Email:"john_doe@rainbow.com"}
});