I can verify that the fix works.  I enabled the "karmic proposed"
repo....and then ran "sudo apt-get install system-tools-backends".
Changing user passwords now works in "Users and Groups".  I am the image
maintainer for Open1to1.org which develops and deploys an image for 1 to
1 netbooks and laptops to schools.  In the creation of the newest image
based on Karmic, one of our testers ran into this bug.  I urge moving
the fix ahead as quickly as possible as this really affects schools and
system admins in school settings.  Thanks for all you do!

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[users-admin] Modifying user has no effect
https://bugs.launchpad.net/bugs/463353
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