If the group key is a string, the group command should put all documents whose strings compare equal under the collation into the same group. However, the groups are instead determined using a simple binary string comparison. This can be reproduced as follows:

db.c.drop();
db.c.insert({_id: 1, str: "foo"});
db.c.insert({_id: 2, str: "FOO"});
db.c.insert({_id: 3, str: "bar"});
db.c.insert({_id: 4, str: "BAR"});

db.c.group({
    key: {str: 1},
    initial: {count: 0},
    reduce: function(curr, result) { result.count += 1; },
    collation: {locale: "en", strength: 2}
});

I would expect this to return 2 groups under the English case-insensitive collation, but instead the server returns 4.