I don't have the clear text output license, just the encrypted one (00A2). And it works fine like that on my setup. It also says "creating encrypted HDL", but a few lines before, it also says that the design won't be time limited. Here is what I get with Quartus 10.0:
# 2010.12.06 13:14:06 (*) Running Generator Program for cpu
# 2010.12.06 13:14:09 (*) Starting Nios II generation
# 2010.12.06 13:14:10 (*) Checking for plaintext license.
# 2010.12.06 13:14:10 (*) Plaintext license not found.
# 2010.12.06 13:14:10 (*) Checking for encrypted license (non-evaluation).
# 2010.12.06 13:14:11 (*) Encrypted license found. SOF will not be time-limited.
# 2010.12.06 13:14:11 (*) Getting CPU configuration settings
# 2010.12.06 13:14:11 (*) Elaborating CPU configuration settings
# 2010.12.06 13:14:11 (*) Creating all objects for CPU
# 2010.12.06 13:14:11 (*) Testbench
# 2010.12.06 13:14:11 (*) Instruction decoding
# 2010.12.06 13:14:11 (*) Instruction fields
# 2010.12.06 13:14:11 (*) Instruction decodes
# 2010.12.06 13:14:12 (*) Signals for RTL simulation waveforms
# 2010.12.06 13:14:13 (*) Instruction controls
# 2010.12.06 13:14:13 (*) Pipeline frontend
# 2010.12.06 13:14:13 (*) Pipeline backend
# 2010.12.06 13:14:18 (*) Generating HDL from CPU objects
# 2010.12.06 13:14:28 (*) Creating encrypted HDL
# 2010.12.06 13:14:33 (*) Done Nios II generation
Do you have something similar?
If you do the next step is to look through all the warnings in Quartus when you compile the design. You may find an explanation there.