The forum is set to require moderation for newly registered users for the first 3 posts. BUT in many of our retreat usergroups I have selected to allow that usergroup to bypass moderation. But those people in those usergroups are still having their first posts held for moderation. Have I missed something?
All is correct. The priority belongs to the "New Registered" user restrictions. After the 3rd post starts working the "can bypass" feature. If the "Can bypass" is disabled the "New Registered" user restriction become pointless for that usergroup and their posts will always be unapproved.
So the "Can bypass" works fine, but it only starts working after 3rd post (corresponding to your setting for new registered users).
Here is a good blog post about how to disable moderation: