Rules reaction: "After updating an existing user account" reacts on user login
What event are you using to trigger the node creation? It sounds like maybe there's a "User has logged in" event somewhere in the chain. 

The Rules module can be flakey. (I love it but it drives me crazy sometimes.) If you can't figure it out, you could try to preempt the problem by adding a check to the event where you create the group node to see if a group node already exists before adding one.