It doesn't hurt to try adding it again :) I'm pretty sure it needs to be in both: http://lists.cistron.nl/pipermail/freeradius-users/2011-July/msg00447.html
Yes, that worked. I am now able to authenticate local users with radtest. Thanks - List info/subscribe/unsubscribe? See http://www.freeradius.org/list/users.html