Thanks for the pointers Don. I reapplied the update with the permissions repair. After rebooting (and permissions repair) - no luck with the PEAP connection. After another reboot - things seem to be working. I will update you after a few days to see how things go. So far - so good...
We use the Internet Connect utility and create 802.1x profiles. We are using PEAP now and used LEAP during our beta phase for testing with Aruba wireless systems. I haven't seen a single error with any model of Macintosh authenticating against IAS or ACS in this manner.
There were a couple of "sticky" issues that led us to use the Internet Connect utility but they turned out to be related to the 802.1x profile.
Remember, this may not be a issue with your computer. You may need to call your network admins so that they can add you to the access list on the ACS server. Or adjust your permission settings on the ACS server.