Blair,
I'm not sure why a login menu item would be the problem in all honesty, but if that seems to have helped your problem.. great!
In general, the SCLogin module simply lets users register using the standard Joomla registration method. So, even though they may click the "Register" button in our module, the registration process is completely handled by Joomla. That means the activation code is generated and later checked completely by Joomla and the SCLogin module shouldn't have any any affect on that.
If the problem returns, I'd recommend trying registering using the standard Joomla login module (mod_login). My guess is the problem still happens there as well. Of course, if it seems specific to SCLogin, just let us know and we'll gladly investigate further.
Thanks, and good luck,
Alex