That's very weird. I tested it outmyself - user sillyme is me. I got two emails, the activation one, and while I was looking at that, the password one. No idea if the password one got sent after I clicked on the activation link and got the same "blag already exists" message.
I really don't know what's goping on - I do know that is not what it's supposed to do, It's like the activation switch it getting tripped along the way. the emails came super-fast as well. Timestamp was the same on both. Looking at the headers, the password one was sent 12 SECONDS after the activation one,
Any chance you can switch hosts?