I resolved this problem by exporting my phone contacts (not google contacts) to the SD Card. I then re-imported them to my Google Contacts ... after choosing the import "one vCard" option. With this, you'd expect your contacts to be duplicated. Luckily, you can tell your phone to just show your google contacts. To do this, just go to "People">"View" (press the menu button to access more options) then untick the checkbox that says you should show contacts from "phone" and bingo, you are good to go!
Just did this and still no sync to gmail. Was searching around for quite a while and found out that the sync seems to fail when you have low internal memory - which I did. So I deleted a few big apps (like flash) temporarily, and went back to the sync menu and it started working again!
Now I have an online backup of my contacts too which is great in case I ever lose my phone.
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