I have the exact same problem. This happens in Excel (Word works fine)
1- I open a document from my computer.
2- I go to "Save to Office Live" and click on login.
3- I either have to key in login info, but sometimes it recognizes my previous login.
4- I navigate into Documents (it does not save to root).
5- I say save, the save dialog screen closes.
6- It does not give me a progress bar of online saving as it does in Word. In a few second, save dialog box opens again.
It is always the same, I haven't had any other experience.
Any suggestions?