Am I doing something wrong?
The only way that I see that people can participate in the discussions module is to give them editor privlages. Which allows them to do a whole lot more than just participate.
Don't mess with the privileges at all. Registered users can reply to a thread already.
I'm sorry, but... same problem here - I don't have a clue about registered users replying to threads. I run v1.0.10d and registered users don't have reply/post button.
Oh, ok, I've found the answer by myself: edit module settings, then "Roles that can Edit Content"! Sorry :)!