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I found the solution to this problem on my own, after a
couple of hours of searching through the .php files and the
template files for all the files connected to the user.php
and usermng.php files. If you go into the template for 'add
user' in the admin CP section of the templates, you'll see
the form action link is wrong. It tells the form to add a
user to the file 'usermng' but it is missing the .php at the
end of the filename. Once you add this and save the
template, adding new users works like a charm.