Tried everything. checked your suggestions, created new groups, created new cards in the new groups etc, etc- Nothing works. Still have the greyed out delete command in the pull down menu. It took me some time to get the preview app working due to a permissions issue, with the only solution coming from this forum, not Apple. I'm sure my address book issue is somehow permissions related.
As a last attempt I thought I'd just resynchronise the contacts with my phone and loose the few minor changes i'd made on the imac since last synchronisation. As a final nail in the coffin of my extreme dissatisfaction with Lion, I've just discovered that iSync has been removed in this update. And appears from an initial internet search that I no longer have any means to synchronise my Nokia. Of course the offical Apple solution will be to buy an iPhone...
So far I've spent +10 hours, attempting to get my imac back to a level of functionality before this supposed "upgrade" and I still have several major issues, and these issues are not with 3rd party software (which I'd expect to a degree) but applications that were packaged as part of Lion. Just not acceptable.
I don't have much hair left to tear out, but I'll keep trying...