still waiting for you Joe, anyways Ive been testing around and realized that this problem is only on Jomla 2.5, I tried a clean install of J3.0 and it works just fine...
It is not really a bug. I believe that the problem is in the fact that the login module needs two different layouts, one for J2.5 and one for j3.0. I'll discuss it with the RT dev who worked with me on this and see what we can do about it.
*Karma comes in many forms, my personal favourite is the random saucepan from the sky* J.Spencer 17-02-2009