I've had a look at all similar questions however I've double checked and something strange is definitely happening.

On one server (Solaris with git 1.8.1) I cloned the git repository then copied the .git folder into my existing live files. This worked perfectly, I could run git status, then git diff to check any files that were different.

On another server (Solaris with git 1.7.6) I'm doing exactly the same however git diff shows nothing, even if the contents of the file is definitely different. I have also tested adding a new file, committing it then editing. Same issue, git status shows the file as changed but git diff shows nothing. If I download the changed file and run a diff locally then I get diff output.