This is definitely a problem with Mail Servers. Please set proper SMTP Settings and mail address. If the registration still doesn’t work, tweak a few lines of code in ManageUsers.ascx.vb which is under DesktopModules/Admin/Security Folder. It registers the user correctly but the error occurs in sending mail in UserCreateCompleted Method where
 strMessage = CompleteUserCreation(e.CreateStatus, e.NewUser, e.Notify, IsRegister)
 In CompleteUserCreation Function
 Case PortalRegistrationType.PublicRegistration
Mail.SendMail(newUser, MessageType.UserRegistrationPublic, PortalSettings)
 Dim loginStatus As UserLoginStatus
 UserController.UserLogin(PortalSettings.PortalId, newUser.Username, newUser.Membership.Password, "", PortalSettings.PortalName, "", loginStatus, False)
 The Mail.SendMail throws an error because of which the two lines below the Mail.SendMail which logs you into the website isnt executed.
 Please take a backup of your ManageUsers.ascx.vb. Browse to the following URL and copy all the lines of code and replace the whole code in your ManageUsers.ascx.vb.
 This will fix the registration error issue.