I have that same issue but the UserPreferences.ini was there before
I edited it and now it is no where to be found but the settings have
been saved. Its like its hidden but I can't find it anywhere!!! I
am using Lion too.
Just had one of those -- boy that coffee tastes good, now I'm awake" -- thoughts.
Did you edit the prefs file using TextEdit?
Did you do a "save" or duplicate and save?
(Changing shirts from my CodeWeaver's to Apple's -- and keeping my Turbine shirt at close hand, but that's covered by NDA at the moment!)
Mountain Lion, even more so than Lion, is not only "cloud based," but intent upon using certain aspects of "cloudism" in everything it does.
One aspect of "cloudism" which is talked about in depth in a couple of the "in-depth" (typically several pages worth) reviews of Mountain Lion -- file ownership and storage.
Under Mountain Lion, files are associated with the application which modifies them, not with the "flat file" structure as in the past. Part of this is related to search and part to making them available across multiple platforms. This concept is, in fact, quite revolutionary. If you launch TextEdit by itself (clicking on the application), you get an idea what this is all about as it announces "Textedit for iCloud." You don't see this if you launch a .txt document on your desktop, or select TextEdit to open the .ini file. When you stop and think about it, the implication is clear -- the file really is not where you expect it to be! The "nasty" thing is that within the Apple context, the file really looks like where you think it is (unless you have a slow Internet connection.)
The default save location for TextEdit is "Documents" ... NOT "Documents/The Lord of the Rings Online" -- see if the file is on level up.
A simple "save" should not change location, but duplicate and save as will! (Especially if you are like me and assume that the selections offered up as "defaults" represent where you were, not where Apple wants them to be.
You can check "spotlight" and see if it finds the UserPreferences file. To find out where that file is located, under ML, you need to highlight the entry you want to "find", then Press and Hold the Cmd key until the file name and location scrolls into the "preview" box. The new procedure is annoying.