Well, since I do all my syncing through Mobile Me, I have the sync address book contacts section turned off and it is grayed out. If I leave that on, it will create a duplicate library of contacts on my phone. I did figure out that if you create a new contact from inside one of the sub groups, the contact is automatically assigned to that group and synced accordingly across the spectrum. However, if you want to add one from recent calls or something, it won't do it unless you right the number down and then create a new contact from the desired sub group. Really lame.
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