When trying to add users in the LMS site you can normal press the book symbol and do a search on users in active directory. However when I do that I get the error message. If I type in the user explicitly ie domainusername it picks it up ok
Solution
Download the file from http://elearningforce.org/get/picker.aspx.zip and unpack it to the following directory C:\Program Files\Common Files\Microsoft Shared\web server extensions\12\TEMPLATE\LAYOUTS
Root 
Using SharePointLMS
When trying to add users in the LMS site you can normal press the book symbol and do a search on users in active directory. However when I do that I get the error message. If I type in the user explicitly ie domainusername it picks it up ok