That's fixed in Lucid. Since 2.29.92 we automatically add the user to
the group named after its login if it already exists. That's not really
optimal since it may not be what you want, though - that will be
improved in the next cycle.
** Changed in: gnome-system-tools (Ubuntu)
Status: Incomplete => Fix Released
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Creating username = exising group is refused as user exists
https://bugs.launchpad.net/bugs/370737
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