Polar axes created by the POLAR function in MATLAB 7.6 (R2008a) are simply a set of patch, line and text objects drawn in the right regions to make it look like an axis. This is different from the regular non-polar axes grid lines which are not objects in the handle graphics hierarchy and rendered differently. Therefore, when the contour is overlaid on the polar axes, it hides the grid line and text objects underneath it.
To display the axes grid lines and text objects you will need to extract their handles and set their move them to the top of the graphics hierarchy using UISTACK when all other plotting is complete. For example,
polarline = findobj(gca,'type','line');
polartext = findobj(gca,'type','text');
n = 6; r = (0:n)'/n; theta = pi*(-n:n)/n;
X = r*cos(theta); Y = r*sin(theta); C = r*cos(2*theta);
In addition, you could also set the object's EraseMode property to 'xor' which instrucst MATLAB to render them with a color that contrasts whatever is underneath it. Note that the axes grid line colors will no longer be black in all areas.
For more information on UISTACK, line properties, text properties and displaying contours in polar coordinates, consult the documentation by executing,