I have found solution for this issue. I guess this might help with other similar problems running grunt server. This is what did it for me:
Uninstall SASS
gem uninstall sass
Uninstall COMPASS
gem uninstall compass
Install --pre COMPASS version
gem install compass --pre
Install --pre SASS version
gem install sass --pre
For some reason only running task in this order worked for me. I hope this helps.