User registration silently fails - how to debug?
Recommended steps to trace the error:


Look at watchdog (which you did)
Look at the systems php and apache (or whatever you use) error logs
Take a local copy of the site and start digging


You can find your system logs (php and apache) by looking at the php info under "Admin > Reports > Status > PHP".

For local debugging: http://ratatosk.net/drupal/tutorials/debugging-drupal.html

My first point of entry would be the form definition. You could try for example to add an #after_build callback that get's called once the form has been fully build, and then check which validation and submit handlers are registered.

In your case I would suppose though, that you don't need to go that far. It's probably pretty basic error that will show of in the system logs.