Hi
I was having the same problem, so I tried the plugin on a complete new wordpress installation and it worked just fine, which generaly means plugin/template conflicts somewhere.
After some tests, I found out that indeed there was a conflict with the plugin “widgets reloaded”. I think that the search box generated by the widget reloaded plugin is not the same as the default searchbox, so the Google Custom Search Plugin can’t transform it into the google searchbox.
The solution, if you’re using “widgets reloaded” with this plugin: check the “Use theme’s searchform.php?” box, it then worked fine for me.
Another explaination could be that you’ve go another plugin/function messing up with the ‘get_search_form’ hook. (I was having a custom function turning my form into an html5 form for ex). You could try to open functions.php and search for anything looking like add_filter( ‘get_search_form’, ‘a_function_name’ );
If there is still a problem, you will have to disable you plugins, re-enable them one by one an see which one is doing the conflict.
You could also set the default “twenty-ten” theme just to see if there is something wrong with your theme too.