Select options not loading when using callback function
Your select_user_dropdown_options() function needs to return an array of options, not a block of HTML. See the #options section of the Form API documentation -- you should find yourself re-reading that Form API page a lot.

Your array will be in the form

array(
  'group_1' =&gt; 'Group 1',
  'group_2' =&gt; 'Group 2',
);


A pedantic note -- I believe that's really a function call as opposed to a callback. That's fine; I mention it mostly because you don't include the parentheses when providing the names of callback functions.