Assuming you are running 1.5, from Home, if you go into Settings->Data synchronization->Google, you have "Background data", "Auto-sync", and "Contacts" all checked? There should be a date showing the last contact sync there as well.
If it is checked, try unchecking and checking again.
In 1.5, you cannot change a contact from one to the other - you can create either a phone or Google contact, but the stock people app cannot change them. I believe that there is a third party app that lets you change, but I do not know what it is off the top of my head (all of my contacts are Google contacts, which is how I want them anyway.)
From the "People" app, in the first icon on the bottom, where all of your contacts are listed, press Menu->View. Is "Google" checked?