Yes, there is that. Anything made by man can fail. However, liquid-filled compasses tend to be particularly fragile in my experience. The Cammenga lensatic is a much more robust design on the other hand. A definite plus in my book.

Back in the early 20th century most quality compasses were dry - no liquid, hence no stabilized floating needle, which is a minus at a first glance. On the up side though, I've tinkered with WWI-era military compasses that were still every bit as accurate as the day they left the factory. Despite all the evidence of hard use - some of those toys had been clearly carried on the battlefield and had more nicks and dings than I could count. Compare that to my pampered top-of-the-line Suunto that gave up the ghost after less than a decade of very casual, low stress service.

For some time I did a lot of hiking with an old Soviet army wrist compass. (http://www.thesovietrussia.com/genuine-soviet-military-russian-compass-handheld-wrist-new-surplus) Chunky, primitive and really weird looking, but short of running it over with a truck it could take just about any punishment in the field. So my point is, take away the liquid-filled capsule and it's going to eliminate the Nr.1 problem by far with most modern day compasses.

As far as a low tech alternative to a compass... I think we know the answer to that already. Sun, moon, stars, terrain association - if available/applicable in the first place. A big IF indeed. YMMV but in my opinion there really is no alternative to a good compass other than another compass, GPS or some equivalent modern navigation aid.