I had the same issue with 1.4 -- I'm running multiple instances of BlogEngine.NET on XP SP3 (1.3 upgraded to 1.4 + one new install) and had this issue trying to add my first local user.

The default web.config contain the same machineKey= value for both my BlogEngine.NET instances.

In your web.config look for this:
<machineKey validationKey="D9F7287 ...

Replace the default machineKey with one from this site: http://aspnetresources.com/tools/keycreator.aspx
I can now add new users to both site instances.