@ideasman42: Thanks for the compliment. So are we going to get BMesh? That's great to hear, I hadn't seen it in the 2.5 features yet.
@Syziph: Thanks for the report again, it's very useful if people do some testing. I do a lot of testing myself as well, but it's difficult to find all bugs.
The good news: I was already working on the next version of the script so I'll try to correct the issue in the new version.
I found out what went wrong. The script automatically distributes the vertices evenly across the loop, while the selected vertices maintain their position. Originally I thought this was such a nice feature that you'd always like to have this turned on, but it turns out that it messes things up in examples like Syziph posted. The fix is pretty easy: uncomment line 703 of the script (remove the #), which starts with:
Then when you run the script, untoggle the Reg button and things will work fine. In the next version I'll have the button visible by default.
buttoninfo = Draw.Toggle("Reg", 4, 85, 30, 25, 20, buttoninfo.val, [...]