This error has been fixed in 1.2.4. The problem was with the introduction of setting a default groupblog theme in the backend. Now we set the default as wordpress would upon installation, so it doesn’t choke when you do not select an initial theme.
We never came across this error, since we already selected a groupblog theme, once you do that you’ll never be able to reproduce that error. If you do, please tell us step by step how to reproduce and what your ‘saved’ settings are in the groupblog wp-admin section.