Some additional info I have found on this problem.
When I attempted to login to the website locally on the server
http://localhost/ I received a browser error (lower left hand side of browser)
Clicking on the error notice I get the detail
Webpage error details
User Agent: Mozilla/4.0 (compatible; MSIE 8.0; Windows NT 6.1; WOW64; Trident/4.0; SLCC2; .NET CLR 2.0.50727; .NET CLR 3.5.30729; .NET CLR 3.0.30729; .NET4.0C; .NET4.0E)
Timestamp: Thu, 13 Oct 2011 18:21:38 UTC
Message: Sys.WebForms.PageRequestManagerServerErrorException: Value cannot be null.
Parameter name: oldPassword
Line: 6
Char: 62099
Code: 0
URI: http://localhost/Telerik.Web.UI.WebRe...
I noted the Parameter name: oldPassword
This appears to me the system is looking for some type of data to be stored for an Old Password, on a new account there is no old password,...
Not sure if this info helps - I still have not been able to resolve the issue for new accounts.
I do know that I can perform a work around by using the admin control panel and changing the users password, although the change does not take effect - the user still logs in with their same AD account password, this does create some confusion for the end user becuase the receive and email from the system that their password has been changed.
Would really like to get this fixed as this problem is holding me back to roll this website out to 200+ employees