I can confirm that this is still an issue in freshly (from scratch) installed 
Karmic (9.10), updated to current as of 7 Jan 2010.  This is on a fit-PC 1.0, 
so the statement above in the thread about it being a slow PC applies.  Since 
the technical info has been handled above, I'll add some less-technical, but 
hopefully useful notes:
* The users and settings applet seems to start up very slowly (even relative to 
the slow system).
* The hosed groups file causes the administrator to lose sudo ability, 
requiring a reboot to single-user mode (not possible due to next item), or from 
a live CD.
* The hosed groups file causes the system not to boot, as dev/pts in mtab has a 
group= option, and when the group is missing, the mount fails due to "bogus 
options".
* Since running into this bug on my first install on this machine, I backed up 
/etc/group and /etc/passwd before using the Users and Groups tool on the 
reinstall.  After the files were hosed, restoring from the backup (via a 
bootable CD, as sudo was unusable, and the system wouldn't boot from the root 
HD) fixes everything, not only that, but after restoring from the backup 
(simply "cp /etc/group.bak /etc/group") and rebooting, the Users and Groups 
tool works perfectly, and starts up much faster than before (relatively).  No 
idea why.
* Your theory about the bug is correct, as long as the users appear in the list 
correctly when the Users and Groups tool launches, everything works fine.  It 
is only when the tool launches with a blank users list that there is a problem.

-- 
Creating an user destroys most of users and groups configuration
https://bugs.launchpad.net/bugs/240437
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