The problem is that user_group.id is nil, so when build is called, the child User object that's created has a nil foreign key. The save on the next line fails for this reason. If you replace UserGroup.new with UserGroup.create!, I'll bet it would work.
That's my take, at least, and it matches the behavior I've seen: You have to save the new parent before adding children. This does not match my understanding of the Agile book, but I've written some tests, and that's what seems to be necessary.
///ark
