Line 125 of policy.py has the following code:
if subject in groups and action.islower() and action not in groups
This assumes that group names are all lower-case, but that's not necessarily true -- the help text on the "permissions" page in Admin says (emphasis added):
"Note that Subject or Group names can't be all upper cased, as this is reserved for permission names."
Some of our group names have upper case characters in them, and so I had to change line 125 to read:
if subject in groups and not action.isupper() and action not in groups
That change made it work nicely with our setup. Great plugin, by the way -- extremely useful :-)