A recent change to Vimeo’s API has broken the way WordPress handles the auto-embed of their videos. This isn’t a theme issue and is being addressed by the WordPress team. As a temporary fix, until a WordPress update or a better solution from Vimeo is made available, you can download and install this plugin.
Update: A few users have e-mailed me and said that the Vimeo embeds will only work with links formatted like http://vimeo.com/video_ID_here (without the www. part). As I said above, the plugin is a temporary fix until a WordPress update comes out that addresses this issue.