Thanks Adam - I had to raise this issue with support in the end as I needed a response.
We solved it by specifying the user's IP address as the reqRemoteAddr in the settings hashmap (option 3).
Otherwise, it was picking up the IP address as 127.0.0.1 - possibly because of the network configuration.
Although there is some information about the additional settings in the SSO documentation, it doesn't really explain how the API determines the IP address for the user or the significance of that in terms of the security checks that the Lithium community site performs. I get the impression that quite a few other people have had difficulties with issue, so it might be worth making it a bit clearer.