Mike,
Thank you for the help. Your suggestion fixed the problem. The information in AD is being propagated in the DNN database. I deleted the users created and they re-created themselves with all AD data being propagated. For ****s and giggles, I deleted the first/last name of a user and then logged in again and the AD module upgrade did in fact re-sync this data. Nice work Stuart and Micheal! 
Adding impersonation to the web.config also fixed the error that I was seeing in the first step of the setup. Stuart: maybe you could add that to your AD setup description? The correct syntax is as follows:
<identity impersonate="true" userName="DOMAIN\username" password="pwd" />
<authentication mode="Forms">
<forms name=".DOTNETNUKE" protection="All" timeout="60" cookieless="UseCookies" />
</authentication>
Note that the impersonation line goes inside the <system.web> element and outside the <authentication> element.
I was also able to downgrade the AD validation user role to a standard user and still achieve the same results. I changed it in the Admin\Authentication page and also in the identity element as noted above.
So, onto my last AD issue:
There is a user that I cannot delete (I don't get the little red "X" in the user administration screen). I added my AD created account as a site administrator and I can no longer delete that user, nor can I revoke admin rights. wtf? This may have been caused by something I did; I might have deleted the original admin and then re-created it. I can't remember if it was this install or the previous one I did that in. Anyway, I cannot remove this user no matter who I am logged in as (myself, admin, host). Any suggestions? Is there a way to delete this user from the backend?
Once again, thank you, thank you, thank you!
Dinsdale