I think this is because the users still exist in the ASPNET tables in SQL, specifically aspnet_users and aspnet_membership. You have to delete the lines in those for the user to join again but there is a specific sequence that must be followed when deleteing lines in the aspnet tables and I cannot remember what it is I had the same problem a while ago and found a post in the forums describing what to do and it worked for me.

Thanks for the great tute. That has made the process much simpler for me.

In case anyone comes across some of the issues that I have:

Firstly, I found that the controls on the ADSI Authentication tab were disabled, and a warning that the web.config wasn't configured properly. I had no idea what wasn't configured properly, but eventually figured out that if i commented out:
<trust level="Medium" originUrl="http://localhost/.*" />
the controls would be enabled. (This could be something do do with my local config)

Secondly, I had trouble getting the system to see my domain. My workstation (XP Pro, IIS) is a member of the domain and login worked ok, but the ADSI auth tab would give me several fails when I clicked on update. So I moved the site to a member server (Win Server 2003, IIS6) and immediately it's working happily. One possibility is that this has to do with windows firewall, but group policy means I can't turn it off to check.

Now I'm at the stage that it works ok, domain users can log in (on either site), but I can't administer the users. When I try to view users in Admin > User Accounts, I get a module load exception... Object reference not set to an instance of an object etc etc.
If I try to Admin > Security Roles, I can see the user accounts, but the names are blank (except for the usual DNN admin account).

If anyone has seen this, it'd be great to hear from you. I'll keep trying to find the answer and post it here when I have it.

If you have access to AD, then you can create a policy to force all of your Intranet computers to recognize your domain as being in the "Intranet Zone" in IE.  That will keep you from having to change each computer manually (saved me a heck of a lot of work with 1200+ computers!).