The problem reappeared in jaunty. 
Although fuse.conf has correct permissions, it still cannot be read:

$ python /usr/share/doc/python-fuse/examples/hello.py -s -f -o allow_other ~/tmp
fusermount: failed to open /etc/fuse.conf: Permission denied
fusermount: option allow_other only allowed if 'user_allow_other' is set in 
/etc/fuse.conf
Traceback (most recent call last):
  File "/usr/share/doc/python-fuse/examples/hello.py", line 92, in <module>
    main()
  File "/usr/share/doc/python-fuse/examples/hello.py", line 89, in main
    server.main()
  File "/usr/lib/python2.6/dist-packages/fuse.py", line 713, in main
    main(**d)
fuse.FuseError: filesystem initialization failed

$ dir /etc/fuse.conf 
-rw-r----- 1 root fuse 212 2009-05-26 12:34 /etc/fuse.conf


** Changed in: fuse (Ubuntu)
       Status: Fix Released => Confirmed

** Summary changed:

- fusermount: failed to open /dev/fuse: Permission denied
+ REGRESSION: fusermount: failed to open /dev/fuse: Permission denied

-- 
REGRESSION: fusermount: failed to open /dev/fuse: Permission denied
https://bugs.launchpad.net/bugs/114212
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