can't override nice menus css I made a custom stylesheet for my nice menu in sites/all/themes/mytheme/css/nice-menu-custom.css 

under admin -> config -> themes -> global settings I set the path for my nice menus stylesheet as stated above. 
After saving this setting, the default css from nice menus actually disapeared from the nice menu block on my site, which obviously verifies that this set up is fine.

other than that, no matter what I do, no css getting processed.


CSS compression is turned off.
My problem actually started with my nicemenu class selectors not working in my at that time sole stylesheet style.css. So figured I'm going to do overriding by the book before asking the my question. Still to no avail.
Flushed caches over and over
I think you are making it sound more complicated than it actually is. (smile)  

As explained here, you may consider simply registering  your custom stylesheet in your theme's .info file:

stylesheets[all][] = nice-menu-custom.css.


Once that is done, you have the benefit that your custom style-sheet will be loaded with all other application's css and js files,  and be optimised by Drupal (when you change your dev settings to prod settings).

You understand that you can then overide any nice menu selector in your stylesheet, as long as your stylesheet loads last it should do the trick. If you want to "delete" an unwanted style, do not hack nice-menu.css, add an empty matching selector selector in your style-sheet.

THen, last but not least you can confirm your custom styles are being loaded by looking through any browser's inspector applet or script viewer, or even view source. Whatever.  In dev mode (no caching, no script compression) you should see the changes without needing to drush cc on your instance.

Hope this helps, good luck