By default, SourceOffSite looks for WinDiff and tries to launch it for viewing differences. Did you browse for the WinDiff utility in the External Programs tab or are you just using the default WinDiff setting?
In some instances, it is necessary to browse for WinDiff in order to get it to work. This is done from the Tools -> Options -> External Programs menu item of the SOS Client.
If WinDiff isn't working, we would recommend configuring SOS to use another diff utility that supports side-by-side file differences.
SOS 3.5.3 can be configured with the diff application of your choice.
Here are URLs for three diff applications which many SourceOffSite customers use rather than WinDiff for file level differences.
ExamDiff:
http://www.prestosoft.com/examdiff/examdiffpro.htm
Beyond Compare:
http://www.scootersoftware.com/sharware.html
Araxis Merge
http://www.araxis.com
Please let me know if the file diff still does not work if you have a different diff utility configured.
Note: SOS 4.0 will ship with its own diff tool.