I can assign a vertex group for the particle density just fine. The problem is when I edit the weights of the vertex group (after I've combed the hair), the hair particles don't update to match. To get it to update, I have to click Free Edit (which, of course, undoes everything i did to that point). Only then does it update in real time with the vertex group. But you can see at around 8:10 on the following tutorial by CG Cookie the hair actually updating AFTER combing.
What could possibly be wrong? I even tried adding a particle system to a simple plane (completely new file, no other modifiers or anything). It just doesn't work.