Hi Sekhar,

I upgraded to service release 2056 and that fixed my problem!  I am retrieving, inserting, and updating data via REST services now.  (Haven't tested deletes yet.)  As for an example, we're doing a lot of non-grid stuff intertwined with the grid stuff, but I'll try to pull the relevant bits here:

1. We have a manual AJAX call to a REST service that returns the column info first.
function getColumnInfo() {
    jQuery.support.cors = true;

    $.ajax(
            {
                type: "GET",
                url: 'Services/columnList',
                data: "{}",
                contentType: "application/json; charset=utf-8",
                dataType: "json",
                success: getGridData,
                error: function (msg, url, line) {
                    alert('error trapped in error: function(msg, url, line)');
                    alert('msg = ' + msg + ', url = ' + url + ', line = ' + line);
                }
            });
}

2. We use the column info to populate an ig.DataSchema. Note: The actual list of columns isn't at the root of columnDetailsJson... They're in a child variable called columnDetailsList.  This is so that we can bring back a couple of other properties as well and store them at the root of the JSON object.  (Like the pk value and the xmlpath --> we used to be setting xmlpath to an empty string, but we've since changed our data service to send the data back inside of a child variable, and we've set the xmlpath to the name of the child variable.  Both ways worked for us... We wanted to send other info back with the data so we had to nest the actual data in a child variable so xmlpath now contains the name of the child variable.)
function getGridData(columnData) {
    columnDetailsJson = columnData;
    dataSchema = new $.ig.DataSchema("xml", { fields: columnDetailsJson.columnDetailsList, searchField: columnDetailsJson.xmlpath });
    bindGrid();
}

3. We bind the grid using the DataSchema and urls to the REST services.  (Our GET rest service returns its data in JSON format, just like you need.)
function bindGrid() {
    if (columnDetailsJson != null) {
        if (alreadyBound) {
            $('#placeHolder').igGrid('destroy');
        }

        var baseServiceString = "/Services/dataService";

        var grid = $("#placeHolder").igGrid({
            autoCommit: true,
            autoGenerateColumns: false,
            columns: columnDetailsJson.columnDetailsList,
            dataSource: baseServiceString,
            schema: dataSchema,
            restSettings: {
                create: {
                    template: baseServiceString,
                    batch: false
                },
                update: {
                    template: baseServiceString + "?id=${id}",
                    batch: false
                },
                remove: {
                    template: baseServiceString + "?id=${id}",
                    batch: false
                }
            },
            dataBound: function (evt, ui) {
                //alert('dataBound fired');
            },
            dataRendered: function (evt, ui) {
                //alert('dataRendered fired');
            },
            primaryKey: columnDetailsJson.pkColumnKey,
            jQueryTemplating: false,
            autoAdjustHeight: true,
            width: "500px",
            features: [
     {
          name: 'Updating',
         enableDataDirtyException: false,
         enableAddRow: true,
         enableDeleteRow: true,
         editMode: 'row',
         columnSettings: columnDetailsJson.columnDetailsList,
         showReadonlyEditors: false,
         startEditTriggers: "dblclick F2 enter"
     },
                    {
                        name: "Selection",
                        mode: "row",
                        activeRowChanged: function (evt, ui) { activeRowChanged(evt, ui); }
                    }
    ]
        });

        alreadyBound = true;
    }
}

4. The grid placeholder is just an HTML table.
<table id="placeHolder" style="width:100%"></table>

Hope that helps.  But we are now generating the grid using a RESTful web service which returns data in JSON format, so it can be done!

Jamie