To fix this I ended up changing the config.rb to reflect the following (enabled relative assets):
# To enable relative paths to assets via compass helper functions. Uncomment:
relative_assets = true
And then removed "images" prefix from my SCSS file:
@import "quiz/*.png";
Turns out, Compass already adds the images folder prefix to the generated spritesheet and will add "../" when the relative_assets = true flag is uncommented.
Hope this helps someone out there :D