The EXECUTE permission was denied on the object 'InsertTrackingAndStatus'
To fond out how to enable and view the workflow manager log file, please follow the technet guide at: http://technet.microsoft.com/en-us/library/jj193526.aspx. From the error message it seems the problem is related to database permission related. So connected to the database (using SQL management studio) and found out the workflow manager windows service user's (under whose credentila's the workflow service is running) security settings. The original permission I found was "WFServiceOperators" and then I added dbo permission to the user also. Then I restarted the SQL service and it all started working. I know this is not the best solution but for time being the hack solved the problem in my Dev.
Update From Workflow Team
I've posted the bug in Workflow forum: http://social.msdn.microsoft.com/Forums/en-US/wflmgr/thread/054d2a58-8847-4a6a-b1ab-05a79f49fe65 . As described in the forum, you need to run the following script against the database:
But still if the above script doesn't solve your problem, you can set the workflow user as dbo in the database