It's a proverb. When it comes to proverbs grammar doesn't always to be so correct but this sentence is actually fully correct. "Rainbows" here means "easy and careless". So the meaning of this sentence is "Life is not always easy."

The rule is this: match the verb with the subject. "Life is..." is perfectly correct, and it doesn't matter whether the next part is plural or singular. A similar saying is, "Life's not all beer and skittles", which means life is not always perfectly enjoyable (such as a visit to the pub to play skittles).

1. The correct version is in fact: "It's not always rainbows and butterflies. It's compromise that moves us along." 2. It is not a proverb. It is just a quote from the pop song "She Will Be Loved" by the band Maroon 5. 3. The version I quoted above is grammatically correct.