I had a similar problem where the spell checker was underlining ever word (not just misspelled ones).

I made sure the right dictionaries were installed then restarted Firefox and the problem resolved itself.

You can see which dictionary is selected if you right-click in a text area and open the Languages submenu.
You can open the "Add Dictionaries" link to install a dictionary if you do not have one.
Make sure that [X] "Check Spelling" in the right-click context menu has a tick.

You can enable or disable spell checking globally:

• Firefox > Preferences > Advanced : General: Browsing: "Check my spelling as I type"

See also:

• http://kb.mozillazine.org/Spell_checking

i've installed the spanish dictionary on firefox 4 about 4 times and it still does not register on the browser. :(