Could somebody from development reply to this? I have the exact same problem.
I changed the calendar format to display date & time only instead of week day names (referred to http://www.foragoodstrftime.com/
by clicking the "Generate your own formats" link in Calendar settings view.
After changing it, the clock and date stopped updating. Reverting to defaults did not fix this.
I don't know if this is related or not but earlier I also changed the weekdays to start from Monday.
This did not break the clock updating when I did it but I thought it might be worth mentioning since it does affect the calendar applet.