Hi Gary,
Perhaps this is a driver or precision issue in the procedure. What version of Sybase are you using? What version is the driver? What is the parameters section of the procedure look like?
I am using Sybase 11 with driver version 3.11.00.01 and the following code works fine:

connstr="DRIVER=Sybase System 11;UID=user;password=password;DB=db;SRVR=sybase11"

TEXT TO proccode noshow
create procedure addervarchar
@mult1 varchar(8), @mult2 varchar(8), @result varchar(16) output
as
select @result = (@mult1 + @mult2)
ENDTEXT

MESSAGEBOX(proccode)

xx=SQLSTRINGCONNECT(connstr)
yy=SQLEXEC(xx,proccode)
IF yy<0
=AERROR(lar)
MESSAGEBOX(lar[2])
ENDIF
x="Hi! "
y="Gary "
z=SPACE(16)
zz=SQLExec(xx,[exec addervarchar ?x,?y,?@z ])
MESSAGEBOX(z)

=SQLDISCONNECT(xx)