Ok. I created a test user group, parent is public. Same result. Ok when assigned to the default registered group, but when assigned to the test group, the user is blocked.
To further test, I also created a new user with a new membership and then unsubscribed them from the plan. I did the same testing I did previously with the existing user with the same results. The user is blocked when assigned to 2 user groups, but when assigned to one they are given the renewal and upgrade options.