It was very simple to impliment. No changes to the database, only the VB code. I changed the .NET code in the AspNetMembershipProvider.vb module to match the below:

~line 777 modify CreateUser:

Public Overrides Function CreateUser(ByRef user As UserInfo) As UserCreateStatus
    Dim createStatus As UserCreateStatus
    Dim _config As Authentication.Configuration = Authentication.Configuration.GetConfig()
    Dim ProviderTypeName As String = _config.ProviderTypeName
    Dim isADSIProvider As Boolean = (ProviderTypeName.IndexOf("Authentication.ADSIProvider") >= 0)

    Try
        ' check if username exists in database for any portal
        Dim objVerifyUser As UserInfo = GetUserByUserName(Null.NullInteger, user.Username, False)
        If Not objVerifyUser Is Nothing Then
            If objVerifyUser.IsSuperUser Then
                ' the username belongs to an existing super user
                createStatus = UserCreateStatus.UserAlreadyRegistered
            Else
                ' the username exists so we should now verify the password
                If isADSIProvider Or ValidateUser(objVerifyUser.PortalID, user.Username, user.Membership.Password) Then

                    ' check if user exists for the portal specified
                    objVerifyUser = GetUserByUserName(user.PortalID, user.Username, False)
                    If Not objVerifyUser Is Nothing Then
                          .....

I then recompled the code and copied the newly created dll files, I believe there were 4, to the bin directory of my site. It corrected my issues. What the code does is check to see if the site is active directory authenticated. If it is, it avoids the username and password check, which is why sign up to child portals fails. As the AD module doesn't store the actual AD password,  the password check always fails and thinks there are 2 different users trying to use the same username.

Also, make sure your site is configured for active directory authentication in the site settings, Forms authentication in the web.config, and copy your windowsignin.aspx file from the admin area to the root. Ensure this page is called, instead of the default.aspx page, and everything should work. Took me all of about 15 minutes.

I believe he means the portal root for each site.

Windowssignin.aspx is just a redirection page that calls the Active Directory authentication process if <add name="Authentication..... /> is uncommented in the web.config. At the end of process it's automatically redirected to the default page for the portal with the user logged in. If <add name="Authentication.... /> isn't uncommented then the authentication code is bypassed and the page goes to default.aspx without the user being signed in.