This occurs when the affected user has Windows Authentication only. To resolve the issue, assign a Raiser's Edge password to the account before resetting the user options.  

In the event the error occurs after RE7 Authentication has been assigned to the user account record, exit and sign out of The Raiser's Edge.  Upon logging back in, open the affected user account in Admin > Security.  If the RE7 Authentication 'Password' and 'Confirm' fields are blank, re-enter the credentials and save and close the user's account.