I don't have much time right now... so I won't go into as much detail as I could... But the way contacts is dealing with groups is that all parties are part of the group registered users (-2), this can be a person who is not a user or an organization (who obviously cannot log in) or a user who can log in. When you add a person you can specifiy whether or not to create a user or just person object. So contacts treats the registered users group as a list of all registered contacts. I know this doesn't work great in theory, and in practice it doesn't allow for private contact lists (which we should allow in the long run) - both of which are not problems for Me or Malte (as I understand it). I'm under time constraints and this was the hack that worked for what we were doing. When I get the time (or the need to do it), or if somebody volunteers I would be happy to work out how to fix this. It shouldn't be too hard to fix.
My comment above simply stated that because of the way contacts has been set up currently the changes I made will not affect current contacts setups in practice. This issue will be resolved before contacts leaves the development stage (probably with an application group per contacts instance or something similar).
