I had similar problem once.
is your source code pluggin under git ?
as you say that you modified the LS gem plugin I suspect that iti s not.
if not gem build will create an empty data.tar.gz directory because of the following line in gemspec.
# Files
s.files = `git ls-files`.split($\)
you can check the content of the generated gem by untaring it
pluggin install won't complain if data is empty and claim "installation succesfull"
either git init (best way) your source directory in order to get infomation from git ls-files, or edit the gemspecfile to get the accurate list of files to embed in the gem.