I'm not that familiar with P2Pool to be honest. But blocks are being generated on the network just fine.
There are no known issues with mining on the 1.2.0.2 client.
Have you tried solo mining?
UPDATE: By the way the message you mentioned normally means you mined blocks that were orphaned.
I exported the transactions, it's showing over 500 "Generated but not accepted" blocks in under 1 hours, if it's crating that many orphans than there must still be an issue somewhere with the coin/block!