I think this is a good question that is worth exploring. I don't think there is a performance or standards-based argument for not using inline CSS - it works perfectly well - the only (though considerable) argument for separated CSS is for maintainability / readability. And so if you are generating CSS from JavaScript, generating it inline is just as sound as any other way.
In fact, DOM APIs in general expose much simpler methods for assigning styles directly to elements ( https://developer.mozilla.org/en/DOM/element.style ) than for creating new stylesheets. Therefore almost all JavaScript libraries, like jQuery, when they have to manipulate styles they do it by adding inline styles to an element.
Having said that, I have never before seen a situation where the mark-up and styling for a whole page was generated with JavaScript. I would expect this to be rather inefficient. I can see that if you have a web application where all content is pulled in through Ajax (a perfectly good solution) then you might write a fair bit of the mark-up with JavaScript, but still it would be better/more efficient to load most of the surrounding mark-up for your content in the initial page load, and then use JavaScript to swap out content within existing elements.
In any case, I would recommend that you keep most of your CSS in an external stylesheet with relevant classes already defined, so that all your JavaScript does is create elements with the correct class. This would have a performance advantage and would also mean that all your style information was located in one place, and is separate from your JavaScript, which would make your code easier to maintain.