Look at my post at http://www.infopathdev.com/forums/t/9567.aspx I succesfully built a web service in C# that can list all the Distribution Lists in a container ( or in my case I filtered the Distribution lists beginning with "_Sales - " ). My InfoPath form has a field that is a a drop down list of all the Distribution groups matching my filter. My second WebMethod allows you to type in the name of a Distribution list and it returns all the members of that list to choose from.
The logic appears to be the same fo Security Groups, Distribution Lists, or even OU's. You can create a drop down list for the members of any of them.
I agree with you this stuff is a !@$#* for people like me who have no porgamming experience - I got some help that pointed me in the right direction, I am now trying to take the Group selected from the first web method and point it to the second web method so my second drop down automatically uses that group to list its members in a drop down.
Good luck