I just noticed VMware has released vCenter Server 5.1 Update 1a, which resolves the AD authentication issues from Update 1.

You can download the updated binaries from the following location:
https://my.vmware.com/web/vmware/details?downloadGroup=VCL-VSP510-VC-51U1&productId=285&rPId=3669

From the VMware.com website:

After upgrading to vCenter Server 5.1 Update 1, attempts to log in to vCenter Server might fail if the vSphere set up has large numbers of domain groups
If SSO is configured with multiple domain-based identity sources and vCenter Server domain user accounts are associated with a large number of groups, attempts to log in to vCenter Server 5.1 Update 1 by using vSphere Web Client or vSphere Client might fail when you use the domain username/password credentials. An error message similar to the following is displayed:

The authentication server returned an unexpected error:
ns0:RequestFailed: Internal Error while creating SAML 2.0 Token. The error may be caused by a malfunctioning identity source.

The vpxd log file contains entries similar to the following:

2013-04-26T17:45:46.416+02:00 [05076 info '[SSO]' opID=E66B0971-00000004-e8] [UserDirectorySso] Authenticate(DOMAINuser, "not shown")
2013-04-26T17:45:47.617+02:00 [05076 error '[SSO]' opID=E66B0971-00000004-e8] [UserDirectorySso] AcquireToken SsoException: Unexpected SOAP fault: ns0:RequestFailed; request failed.
2013-04-26T17:45:47.617+02:00 [05076 error 'authvpxdUser' opID=E66B0971-00000004-e8] Failed to authenticate user DOMAINusername

This issue is resolved in this release.