Change the Nav to Off-Road Mode and try again, not in the car but I believe if you get to the map screen and then press the Nav hard key again, you should get the choice on the touch screen for On Road or Off Road - after selecting Off Road mode, the compass should start working.
This is yet another counter intuitive, frustrating, total lack of useful UI design by Land Rover.
Michaeltw, thank you for taking the time to guide me, howver, I am unclear as to what you mean when you say "not in the car", or "then press the Nav hard key again". Sorry for appearing so dense...could you please explain?
Don't believe holding the button has anything to do with it - just get to the map screen(clear warnings, destination prompts, etc...) and hit the Nav button, it's labeled Nav on an '08, just an icon on the '06, it's the top right button off the touchscreen. After you hit it, you should get the screen with two choices, hit the Off Road choice and you're where you want to be, on mine, the compass appears as an overlay immediately on the right side.
If you're still having issues, I can probably put up some pics, but this is documented in the manual too.