Heh… seems I spoke a bit too soon.
What the problem seems to be is that there’s this vertex group with no name, that does not show up in the popup menu. This vertex group only contains verts which occur in the region that gets oddly deformed. Now, because there was an option added in 2.43 to allow you to define a vertex group which the armature modifier will work in, this nameless vgroup was mis-identified as the vgroup being used for that purpose.
Workaround: assign all the vertices in the mesh to a new (additional) vertex group, and give that to the armature modifier in the VGroup field.
I’m fixing this issue now.